FTC won’t pursue ban on noncompete agreements

The Federal Trade Commission announced it will not fight a lower court’s decision to throw out a nationwide rule that would have banned noncompete agreements.

The FTC voted 3-1 on Sept. 5 to dismiss its appeals in two court cases and accept a ruling by a federal court in Texas that ruled the federal agency exceeded its statutory authority when it approved the ban and that the noncompete rule is “arbitrary and capricious.” If enacted, the noncompete ban would have impacted an estimated 30 million workers.

“Despite this ruling, employers and employees should also continue to consider applicable state laws, as many states have already enacted legislation restricting these agreements,” said Michael Kim, J.D., ADA associate general counsel. “This does not eliminate the possibility that the FTC could seek to enact a more narrow rule in the future.”

While the nationwide rule will not move forward, the FTC has indicated it will review and, where appropriate, challenge noncompete provisions on a case-by-case basis under its existing enforcement authority. On Sept. 4, the day before voting to dismiss its appeals, the FTC filed a complaint against Gateway Services, a pet cremation company, for allegedly using overly broad noncompete agreements.

“This action shows us that while the FTC won’t be pursuing a complete ban on noncompete agreements, it hasn’t lost its focus on the topic,” Mr. Kim said.

Mr. Kim and Christy Picker-Rothchild, J.D., ADA senior associate general counsel, discussed employment agreements and the FTC’s ruling in an episode of ADA Dental Sound Bites, the Association’s flagship podcast.