Federal Judge Strikes Down FTC’s Ban on Worker Noncompete Agreements: What It Means for Employers
In January 2023, the Federal Trade Commission (FTC) proposed a sweeping federal ban on noncompete agreements in nearly all employment contracts—a move poised to significantly reshape the American labor landscape. Here’s what you need to know about the proposed ban, the recent federal decision, and its implications.
Understanding Noncompete Agreements and the FTC’s Proposed Ban
Noncompete agreements are contracts that restrict an employee’s ability to work for a competitor or start a competing business for a specified period after leaving a company. Traditionally, these agreements have been used to protect trade secrets and prevent unfair competition. The FTC’s argument in support of banning noncompete agreements is straightforward: noncompete agreements are anti-competitive. The rule proposed by the FTC would prohibit employers from entering into noncompete agreements with workers and require them to rescind any existing agreements. This would apply to both new and existing contracts, with few exceptions. The FTC’s proposed ban was set to take effect on September 4, 2024.
The August 2024 Ruling
In August 2024, a federal judge struck down the FTC’s ban on noncompete agreements, ruling that the agency had overstepped its authority. The decision came after several business groups and state attorneys general challenged the rule, arguing that it was overly broad and infringed on states’ rights to regulate labor agreements.
The judge’s ruling emphasized that while the federal government has a role in regulating interstate commerce, the sweeping nature of the ban encroached on the traditional authority of states to govern employment contracts. The court also expressed concerns that the ban could have unintended economic consequences, particularly for industries that rely on noncompete agreements to protect trade secrets and maintain competitive advantages.
Impact on Employers
While the proposed ban was largely seen as a win for workers, it presented numerous challenges for employers. Businesses have relied on noncompete agreements to protect sensitive information, retain talent, and prevent employees from taking valuable knowledge to competitors. If a federal ban were to come into effect, employers would need to rely more heavily on other legal tools, such as nondisclosure agreements, to prevent the misuse of confidential information.
For now, employers may continue using noncompete agreements as a tool to protect their business interests. However, the decision underscores the need for businesses to be cautious in their use of noncompete agreements. Even though the FTC’s federal ban has been struck down, there is growing scrutiny of these contracts at the state level.
What’s Next?
The court’s ruling is unlikely to be the final word on the issue. The Biden administration has signaled its commitment to reducing the use of noncompete agreements and could seek other avenues to achieve this goal, such as encouraging state-level reforms or proposing narrower federal regulations that could withstand legal challenges.
Employers will need to stay informed about the legal landscape in their respective states and consider whether their use of noncompetes is justified and enforceable.
If you have any questions about whether your noncompete policy complies with Oregon law or need help considering alternative strategies for protecting business interests, you can contact me at or (971) 867-2728.
Posted by Christina Joseph.
