The future of the Noncompete Ban previously announced by the Federal Trade Commission (FTC) remains uncertain as the U.S. Courts of Appeals for the Fifth and Eleventh Circuits prepare to deliberate on its legality. Originally set to take effect on September 4, 2024, the Ban was put on hold by a nationwide injunction pending appeal.
Noncompete clauses, which are widely used in various industries throughout the U.S., are intended to protect the interests of the businesses that employ them and to justify investments in specialized employee training. Supporters believe these agreements are essential for maintaining a competitive edge, while critics argue they unfairly limit job mobility and suppress wages.
Until the FTC’s announcement, noncompete agreements were only subject to state law, some of which fully enforce their terms while others severely restrict them. Proposed by FTC Chair Lina Khan, the proposed ban aims to create a uniform national standard for noncomplete agreements by effectively abolishing them in most applications, based on arguments that they
restrict job mobility, reduce wages, and violate Section 5 of the FTC Act.
Noncompete Ban: Legal Challenges in the Fifth and Eleventh Circuits
The FTC’s noncompete ban first encountered serious legal opposition on August 20, 2024, when the U.S. District Court for the Northern District of Texas issued an injunction blocking the institution of the ban nationwide. The agency appealed the District Court’s injunction to the Fifth Circuit on October 18, 2024.
Similarly, on August 15, 2024, the U.S. District Court for the Middle District of Florida issued a preliminary injunction limiting the application of the noncompete ban. The FTC appealed this decision on September 24, 2024. Both cases address whether the FTC exceeded its regulatory powers when it instituted the ban, and raise further questions about federal control over employment agreements.
Adding another layer to these issues is the Supreme Court’s Loper Bright ruling issued on June 28, 2024 overturning the 40-year precedent of Chevron deference, which granted federal agency interpretations of ambiguous laws a degree of judicial deference. With Chevron deference no longer in effect, courts are expected to scrutinize agency regulations more closely, and some may be less willing to defer to the FTC’s interpretation of its statutory authority under Section 5 of the FTC Act.
Political Influence and Future of the FTC
Although the Noncompete Ban itself is not a strictly partisan issue, the 2024 presidential election will likely influence the FTC’s direction. Chair Lina Khan, known for her progressive regulatory approach, was appointed by President Biden. A change in administration will most likely lead to her replacement, with an associated shift in the agency’s priorities. Indeed, former/future President Donald Trump has expressed plans to scale back regulatory initiatives.
Outlook for FTC’s Noncompete Ban
The fate of the noncompete ban will likely depend on the outcomes of the Fifth and Eleventh Circuit appeals and possibly a Supreme Court review. Although the legal challenges have yet to be resolved, the odds are that the FTC’s noncompete ban will not survive, in light of the absence of Chevron deference and the upcoming administration’s disdain for regulatory initiatives. The final decisions could continue to signify not only the FTC’s role in employment practices but also the broader regulatory landscape in the U.S.
