The Federal Trade Commission (FTC) is facing a pair of lawsuits after the agency finalized a proposed rule that would ban most noncompete agreements with workers. If the rules first proposed a little over one year ago are allowed to take effect, companies would be prohibited from enforcing existing noncompete agreements with any employees other than senior executives.
Updated at 1:03 p.m. April 26.
Two business groups, including the U.S. Chamber of Commerce, have filed separate lawsuits against the FTC over final rules the agency published Tuesday banning most noncompete agreements with employees. Both lawsuits were filed in Texas, according to reporting by the Wall Street Journal.
The FTC estimated that the final rule would spur economic development to the tune of more than 8,000 new businesses being formed per year, and the agency said about one in five workers are currently covered by a noncompete agreement.
“An outright nationwide ban is a huge shift for employers in most states,” said Michelle Roberts Gonzales, a partner at Hogan Lovells’ Los Angeles office. “There may be persistent uncertainty, depending on the legal challenges. But employers will need to adapt quickly to the changing landscape regardless.”
Several changes were made from the proposed rule. For example, a requirement for employers to formally rescind existing noncompetes was dropped from the rule, a move the FTC says will make compliance easier. And while companies will be permitted to enforce existing agreements with senior executives, a role the FTC defines as earning at least $151,165 per year and having a policy-making function, they would be prohibited from entering or enforcing new ones.
The final vote was 3-2 along party lines with Commissioners Melissa Holyoak and Andrew N. Ferguson, both Republicans, voting no. The FTC says it received more than 26,000 comments about the proposed rule, the majority being in favor.
President Joe Biden celebrated the vote in a social media post, writing on X, “Workers ought to have the right to choose who they want to work for,” while a U.S. Chamber of Commerce statement called the rule a “blatant power grab that will undermine American businesses’ ability to remain competitive.”
Unless it’s blocked by a court, the federal rule would take effect in about three months, and similar bans have already gone into effect at the state level, including in California and Oregon.
