Turner Padget Insights
The FTC's Non-Compete Ban: What Employers and Employees Need to Know
Posted On January 30, 2025
Since the Federal Trade Commission (FTC) announced its sweeping ban on non-compete agreements in May 2024, we’ve received many questions about what this means for businesses and employees alike. The ruling was set to take effect in September, invalidating most non-compete agreements nationwide. However, before it could be enforced, a federal court blocked the rule, leaving many wondering—what happens next?
The legal battle is far from over. The FTC has appealed the decision, and the debate over the future of non-compete agreements continues. While the rule never took effect, the FTC’s position signals a growing shift away from non-competes, arguing they unfairly limit job mobility and stifle competition.
So, what does this mean for employers and employees right now? In this post, we break down the current status of the FTC’s non-compete ban, what businesses should consider in light of this legal uncertainty, and what employees need to know about their rights moving forward.
Breaking Down the Current Status of the FTC's Non-Compete Ban
As of now, the FTC’s non-compete ban is on hold due to a preliminary injunction issued by a federal court in Ryan, LLC v. FTC in August 2024. The court ruled that the FTC overstepped its authority, deeming the ban as arbitrary and capricious, thus preventing it from taking effect. The Fifth Circuit Court of Appeals is set to hear the FTC's appeal, meaning the legal status of the ban is still uncertain. However, it’s clear that the ruling has sparked a wider conversation about the fairness of non-compete agreements and their impact on employees' rights and job mobility.
What Businesses Should Consider
Despite the FTC Ban being blocked, businesses should still rethink their use of non-compete agreements. The case has brought significant attention to the issue, and many state laws are already moving toward restricting non-competes, particularly for lower-level employees. Here's what businesses should consider:
- Review Non-Compete Agreements: Businesses should reassess any non-compete clauses in employment contracts, especially for roles that may not qualify as "senior executives" under any future regulations.
- Be Prepared for Potential Change: While the federal ban is on hold, changes at the state or federal level are still possible. It’s important to stay informed and ready to adapt to new regulations that could restrict non-compete use further.
- Consider Alternatives: Employers may want to consider other means of protecting business interests, such as non-disclosure agreements (NDAs) or non-solicitation agreements, which can offer protection without severely limiting employees' job prospects.
What Employees Need to Know
For employees, the FTC's stance on non-competes signals a shift towards greater job mobility and fewer restrictions on changing jobs or starting businesses. Although the FTC Ban is temporarily blocked, here’s what employees should know:
- Non-Competes May Be Challenged: The ruling has set the stage for future challenges to non-competes, especially if the FTC wins its appeal. If you’re subject to a non-compete agreement, it may become unenforceable if future rulings support the ban.
- Know Your Rights: Employees should understand their rights regarding non-compete clauses in their employment contracts. Even if the federal ban does not go into effect, some state laws may offer protections or limit the enforceability of non-competes.
- Opportunities for Job Mobility: If you're under a non-compete, the public debate and ongoing litigation may signal that employers’ use of these agreements will face greater scrutiny in the near future. Keep an eye on changes to both federal and state laws that could affect your ability to pursue new opportunities without legal concerns.
In summary, the FTC’s non-compete ban is still being litigated, and while its future remains uncertain, it’s important for both employers and employees to stay informed and prepared. Businesses may need to adapt their practices, and employees should know that the legal landscape surrounding non-competes is evolving. Stay tuned for future updates on this important legal issue.
Robert Mullins is Of Counsel in the Firm’s Augusta office where he serves clients throughout Georgia and the Southeast. He focuses his practice on business and commercial litigation as well as trademark, copyright, and patent litigation.
