Trump's administration loosens Federal Trade Commission's restriction on no-compete clauses
In a significant move, the Federal Trade Commission (FTC) has voted to vacate its rule banning noncompete agreements, leaving millions of American workers potentially bound by these restrictive clauses.
The decision, made in 2024, came after a lengthy legal battle that began in 2021. The initial ban, finalized in the same year, aimed to protect workers from being restricted from seeking employment in similar fields for a certain period. However, a federal judge in Texas found that the FTC had likely exceeded its authority in issuing the ban, halting it nationwide.
The lawsuit was brought by the Dallas-based tax services firm Ryan LLC. The Biden administration appealed the ruling to the 5th Circuit Court of Appeals, but the Trump administration asked for a 120-day pause on the appeal and then requested more time.
Rebecca Denton, a transaction coordinator in Grand Junction, Colo., felt the impact of noncompetes firsthand. In 2019, she signed a noncompete that restricted her from similar work in a three-state area for a year. During the pandemic-era surge in housing sales, Denton found herself trapped, wanting to quit but unable to due to the noncompete.
Colorado enacted a law significantly limiting the use of noncompetes in 2022, but Denton's case highlights the ongoing issue. Denton weighed her options and quit her job, taking on lower-paying gig work for a year to steer clear of the line of work in which she has expertise.
Lina Khan, chair of the FTC under President Biden, voted for the rule to ban noncompetes. She, along with Elizabeth Wilkins, former chief of staff to Lina Khan, predicts the enforcement strategy against noncompetes will be insufficient. Wilkins notes that even in states where noncompetes are unenforceable, companies are still using them.
Kent Barnett, a law professor, was the first to challenge the FTC regulation to cancel non-compete agreements, arguing that the FTC overstepped its authority and that such regulations should be decided by Congress.
The FTC's decision to vacate the rule has raised concerns among workers and advocates. The FTC has estimated that some 30 million people, or 1 in 5 American workers, are bound by noncompete agreements. Denton believes that good companies, who pay their employees well and treat them well, have nothing to fear of them leaving and do not need noncompetes because their employees will happily stay. She hopes the law will encourage employers to find other ways to retain workers.
Many workers barely recall signing noncompetes until they try to change jobs. The country's largest pet cremation business has been ordered by the FTC to stop enforcing noncompetes against its nearly 1,800 employees, providing a glimmer of hope for workers seeking greater job mobility. However, the future of noncompetes remains uncertain, as the FTC moves forward with vacating the rule.
