The FTC Has Banned Non-Compete Agreements


The FTC has issued a new rule BANNING Non-Compete Agreements!

Recently, the FTC issued a preliminary rule that seeks to ban non-compete agreements for agreements made after their proposed effective date of August 20th, 2024.

What is the Impact of the Ban on Non-Compete Agreements? 

What does this mean for employers? For now, we just “Hold.” In order for this rule to take effect OVER state laws, it will have to make it through a lot of lawsuits filed against it. Immediately after the rule was issued, numerous lawsuits were filed to stop it before it even started. At a minimum, it is safe to assume that these lawsuits will delay the effective date of the rule, if not prevent it entirely from becoming effective.

What does this mean for employees? The rule will take its sweet time to go into effect (see above for employers), and even if it does go into effect, it would only apply to occurrences that happen AFTER the effective date. That means that employees who have signed non-competes today or earlier, still need to be concerned that their non-compete agreements can be enforced against them. We will need to wait and see what the courts do with this new FTC rule (Do they uphold it? Do they delay it? Will it be appealed?).

That said, we’ve dealt with non-compete laws for decades, now, and every non-compete situation is unique. There are some scenarios where the non-compete contract was well written but unenforceable because of unique circumstances with the employer/employee. Similarly, there are situations where the non-compete is written poorly but it is nevertheless enforceable because they’re in a state where the laws are very favorable to employers (even the ones who don’t write great contracts, cough cough, by hiring lawyers!).

So, if you’re an employer or an employee and you’d like a professional to review your agreements and advise you on strategies, feel free to call us, we’d be happy to help!

Background on the Ruling 

Here’s some more background in case you’re interested:

The FTC is a federal government agency whose powers were granted by Congress. Why is that important? Well, since we started this whole United States of America gig, we’ve had a tension between “States rights” versus “Federal laws.” You may have heard politicians gabbing about giving more or less powers “to the states.” Normally, an act of Congress (a law) that is made by Congress directly (not via one of their agencies) will “supersede” any State’s law that is different from it. This is taken from the Supremacy Clause in the US Constitution. However, here we have an indirect act of Congress (a rule, not even a law, just a “rule”) from an Agency that Congress made. If it weren’t obvious, rules made by a few federally appointed agents at an agency don’t always supersede State Laws. One of the major lawsuits filed against this FTC Rule on non-competes using this legal theory. It may be the case that Congress itself will need to make a new law (directly) that would then be signed into law by the President (or vetoed, depending on who the Pres at that time), in order for it to control the State laws.

Will This Ruling Overtake State Law?

States like Georgia currently have strong non-compete laws that are favorable to Employers, so there’s clearly an issue of “which law or rule controls over the other one?” In fact, Georgia (about 15 years ago) went so far as to amend its own State Constitution (which is given more deference than State laws) to allow for non-compete agreements! So can an indirect rule from a Federal Agency overtake a State Constitution? Probably not, but maybe a direct act of Congress can if Congress decides it wants to make that sort of law.

Now we’re starting to sound like a law school class! All interesting questions, but you get the idea. The gist, for now, is: hold