Noncompete Agreements Ban: The Truth About What it Could Mean for Business

The Federal Trade Commission recently decided to ban all U.S. employers from using noncompete agreements. However, there is significant opposition to this latest ban. The U.S. Chamber of Commerce and Business Roundtable filed a lawsuit against the agency. The Ryan tax services firm has taken legal action. Experts predict more lawsuits are coming.

The U.S. Chamber of Commerce threatened legal action against the FTC before the ban was in effect. The Chamber felt the agency was abusing its authority by creating a law against what it determined to be “unfair methods of competition.” The lawsuit also argues that the FTC does not have the power to enforce the ban without a Congressional mandate.

“The FTC contends that by using regulation they can simply declare common business practices to be ‘unfair methods of competition’ and thus illegal. This is despite the fact that noncompete agreements have been around longer than the 110-year-old FTC and until now no one has suggested that they are illegal. If the FTC can regulate noncompete agreements, then they can decide to regulate or even ban other business practices. All without a vote from Congress,” the U.S. Chamber stated in a release that accompanied their lawsuit announcement.

The Chamber has partnered with the Business Roundtable and the Longview Texas Chamber of Commerce to fight the ban on noncompete agreements. They request that the court issue a stay that would prevent the rule from going into effect during litigation.

Meanwhile, FTC chair Lina Khan responded to the Chamber’s action. She stated that the agency is acting within its legal limits. During an appearance on CNN’s “The Lead with Jake Tapper,” she claimed that the FTC has “clear legal authority” to issue a ban on noncompete agreements.

Delays Before the Noncompete Agreements Ban Goes into Effect

The ban on noncompete agreements will not go into effect until 120 days after it is published in the Federal Register. Therefore, it would not become official until September. However, lawsuits could postpone the ruling even further- whether through a stay or preliminary injunction.

In the meantime, companies will be uncertain how to proceed with noncompete agreements that are currently active or may soon become active. If the ban goes through, the agreements will be unenforceable. However, existing noncompetes for senior executives will remain in place regardless of how the ruling plays out.

“I’m generally telling clients to take a wait-and-see approach with respect to the FTC rule while court challenges play out in the next few weeks,” said self-employment lawyer and partner at DLA Piper Daniel Turinsky.

The delays and lawsuits may keep employers and employees in the dark for several months. Employers issuing noncompete agreements while the law is up in the air may be challenged by employees aware of the FTC’s impending ruling.  

Some feel the ban on noncompete agreements is unfair. However, the FTC has stated that it will increase worker wages by up to $488 billion over the next ten years. The agency also states that it will aid in the creation of over 8,500 new businesses annually.