Earlier this month, the Federal Trade Commission (FTC) abandoned its attempt to enforce a nationwide ban on noncompete agreements. The federal rule at issue was grounded in Section 5 of the Federal Trade Commission Act which empowers the FTC to prevent businesses from using unfair methods of competition.

Proponents believed noncompete clauses to be exploitative of the average worker and harmful to American innovation. Therefore, the FTC rule not only sought to prevent employers from entering noncompete agreements with their workers and independent contractors, but it also required employers to rescind existing noncompete clauses; informing their employees that their noncompete agreements were no longer in effect.

Dissenting voices argued that the FTC did not have the authority to promulgate legislative rules for unfair methods of competition and this argument prevailed in Texas federal court – a decision that the FTC appealed. Nevertheless, amid mounting challenges and the change in executive branch administration, the FTC has withdrawn the pending appeals and vacated the rule.

Non-compete clauses are still subject to case-by-case scrutiny under Section 5 of the FTC Act and are also subject to a complex and continually shifting landscape of state laws. Some states have already enacted outright bans on such agreements, while others have taken a more nuanced approach based on factors like employee income levels, job type, or industry. Therefore, because of the significant variation in how noncompete agreements are regulated and enforced among the states, it is essential that employers consult with qualified legal counsel before drafting or implementing noncompete clauses to ensure compliance and to protect legitimate business interests.

(This blog, prepared by Campanella Law Office, is for general informational purposes only and is not intended to convey specific legal advice, nor is it intended to create or constitute an attorney-client relationship.)