In a ruling on August 20, 2024, U.S. District Judge Ada Brown halted the Federal Trade Commission’s (FTC) noncompete ban that was set to take effect on September 4, stating that the FTC lacked the authority to enforce the ban, calling it “unreasonably overbroad without a reasonable explanation.” The case, Ryan v. Federal Trade Commission (Case No. 3:24-cv-00986), is the most advanced of three lawsuits challenging the FTC’s ban. Brown’s ruling applies to employers and employees nationwide.
Noncompete agreements prevent employees from working for or starting a competing business in a specific area and time period and affect an estimated 30 million American workers. Supporters of noncompete agreements argue that they protect a business’s investment in their employees, while opponents, which include the FTC, contend that these agreements harm workers by restricting employment opportunities and stifling economic growth.
The August 20 ruling returns the regulation of noncompete agreements to the states. Only a few states ban them entirely, but most states put some restrictions on their use. Colorado and California are among the states that have banned the vast majority of noncompete agreements, allowing very limited exceptions.
Most states at least require that noncompete agreements be reasonable in scope and duration and no more restrictive to the employee than is necessary to achieve legitimate business needs, most notably the need for employers to protect trade secrets and proprietary information.
Brown's ruling sided with the U.S. Chamber of Commerce and a Texas-based tax firm, which sued to block the ban. Her ruling is in contrast to an earlier decision by a federal judge in Pennsylvania who had supported the FTC's authority to enact such a measure.
FTC spokesperson Victoria Graham stated the following: “We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages… We are seriously considering a potential appeal.”
Graham also noted that the FTC would continue to address noncompetes through case-by-case enforcement actions.
Brown’s ruling underscores the ongoing debate over federal regulatory authority and the role of agencies like the FTC in shaping labor market policies. The FTC’s options now include appealing the ruling to the Fifth Circuit Court of Appeals in New Orleans, a court known for its conservative stance on federal regulatory matters.
Where allowed by state law, employers can continue to use and enforce employee noncompete agreements. Employers Council will continue to monitor any developments related to this ruling. If you have any questions about whether and to what extent noncompete agreements are allowed in a specific state, please contact us.