Noncompete Ban: FTC needs a pause, companies need a plan
![Noncompete Ban: FTC needs a pause, companies need a plan](https://thehill.com/wp-content/uploads/sites/2/2024/08/AP24114657912562.jpg?w=900)
Companies in this country have been using noncompete agreements for over 200 years. Sometimes the use has been necessary. Sometimes it has not. While I am no fan of noncompetes in the abstract, they are necessary for some workers in some roles in some industries.
Recognizing that need, every state except four (California, Minnesota, North Dakota and Oklahoma) permits companies to use reasonable noncompetes to protect trade secrets. Many states also permit the use of noncompetes to protect customer relationships and other legitimate business interests.
Despite the impression that there is a groundswell of legislation outlawing noncompetes, that is simply not the case. With the exception of Minnesota, no state considering a noncompete ban has enacted one in the last 100 years. To the contrary, each of the last three governors to be presented with a bill to ban noncompetes (New York, Maine and Rhode Island, in that order) has vetoed it. Even Washington, D.C., which initially enacted a ban in 2021, vacated it before it took effect.
Yet companies now face a ban from a different authority: the Federal Trade Commission (FTC), which issued a rule banning noncompetes that will take effect on Sept. 4. This marks the first time in U.S. history that the federal government has broadly regulated noncompetes. In that regard, in a 2020 FTC “workshop” to consider whether to regulate noncompetes, panelists questioned whether the FTC had the authority to regulate noncompetes.
Nevertheless, the FTC proceeded to ban noncompetes, oblivious or indifferent to the harm that such a decision would cause, and in the face of great doubts about its authority. And now companies and employees around the country are experiencing that harm firsthand.
A federal judge in Texas recently held that the FTC’s rule is unlawful, while a federal judge in Pennsylvania disagreed, and said that the rule is lawful. Both courts’ decisions apply only to the parties in those lawsuits. So, until a court invalidates the rule nationally, companies of all sizes in almost every state are in a quandary: They will either need to comply with the rule, obtain relief from a court (preferably before the rule takes effect), or ignore the rule. None is a good option.
If companies comply with the rule, they will need to notify employees by Sept. 4 that their noncompetes are unenforceable. According to the FTC, that would mean that noncompetes will be invalidated for 30 million employees — a number which, like most of the FTC’s rule, is based on flawed research and grossly overstated. But the point remains: Millions of employees will be relieved of obligations that their employers paid for, and companies will lose an important tool for protecting their trade secrets and relationships with customers and employees.
Worse, if the rule is later vacated, companies that complied may have needlessly forfeited the ability to enforce an otherwise valid agreement. This is an outcome that the FTC has roundly ignored and presumably desires. But, in fairness, it should be avoided.
If companies sue the FTC, there is no guarantee of protection from a court, or that such protection would come before Sept. 4, the date by which companies must comply with the rule. Additionally, to the extent that companies might be concerned that suing in isolation would render them a target for future FTC scrutiny, a massive wave of individual lawsuits would minimize that concern. It could also increase the odds that a court would issue a nationwide injunction.
If companies ignore the rule in whole or in part, they do so at their own peril, potentially facing enforcement actions by the FTC or lawsuits from employees for the continued use of void noncompetes.
Of course, all this uncertainty and needless waste of resources could be avoided if the FTC were to simply acknowledge the obvious and incontrovertible harm to companies and workers from the rule’s looming effective date, and voluntarily suspend it, pending a final decision in the courts. Other than to make a political point and to unfairly force companies to comply with a likely-to-be-invalidated rule, there is no reason not to postpone the rule’s effective date while the matter is being resolved by the courts.
FTC Chair Lina Khan recently told Congress that a core pillar of her agenda is faithfulness to the text of the FTC Act. Given that a court has cast serious doubt on the lawfulness of the rule, Khan should be the first in line to push the FTC to voluntarily stay the rule’s effective date. It would be the right thing to do for the good of companies and workers alike.
Russell Beck is a lawyer in Boston and an expert on trade secrets and noncompetes. He teaches at Boston University School of Law, worked with the Obama administration on noncompete policy, and wrote most of the language in the Massachusetts noncompete statute.
Date: |
Topics
-
ESPN - Sports
Ronaldo: Man United need to 'rebuild everything'
Cristiano Ronaldo has warned that Manchester United require a total rebuild after Sir Jim Ratcliffe's investment in the club in an interview where he also addressed his acrimonious exit.2 hours ago - Premier League -
The New York Times - Top stories
Harris Can Win on the Economy, but She Needs a Stronger Message
Optimistic words and some admirable proposals aren’t enough to overcome the discontent and anger that large majorities of Americans feel about the economy.5 hours ago -
The Guardian - World
Ronaldo criticises Ten Hag and claims Manchester United need total rebuild
Forward implies manager’s attitude is too negative He predicts bright future if they ‘rebuild from the bottom’ Cristiano Ronaldo has intimated the attitude of Manchester United’s manager, Erik ...5 hours ago - Premier League -
The Guardian - World
Solheim Cup’s controversy and close contests are what modern golf needs | Ewan Murray
The biennial battle between Europe and the US always delivers drama and deserves a bigger audience. The Solheim Cup’s propensity to deliver drama remains its most endearing attribute. There was ...19 hours ago -
CBS Sports - Sports
More upsets, please! Why David toppling Goliath is needed in college football now more than ever
Stunners like Northern Illinois taking down Notre Dame carry a little more weight as college football enters a new eraYesterday -
The Wall Street Journal - World
Forget TikTok Baking Hacks. Grandma's 1-2-3-4 Cake Formula Is All You Need.
When did basic become a bad thing? An internet-weary baker makes the case for an old-fashioned recipe that’s impossible to screw up and guaranteed to please.Yesterday - Tiktok -
ESPN - Sports
USMNT's draw shows why Pochettino needs to hit the reset button
The equalizer the U.S. conceded was a fitting bookend to what has been summer caught in limbo.Yesterday -
Financial Times - Business
Labour needs Reeves to be an imperial chancellor
She already has a political empire, but she must command it — and neutralise damage from the government’s early mistakesYesterday -
Yahoo News - World
Scholz stresses Germany's need for immigrants in parliamentary debate
Yesterday -
CNBC - Business
Ireland now needs to decide what it will do with 13 billion euros in back taxes from Apple
The decision comes at a time when Ireland is in the unusual position of running a budget surplus of several billion euros.Yesterday - Apple
More from The Hill
-
The Hill - Politics
The debate failed on foreign policy
Neither candidate offered any specifics about what foreign and national security policies the U.S. would adopt and implement if he or she takes office in January 2025.14 minutes ago -
The Hill - Politics
Sanders: US moving toward 'oligarchic form of society'
Sen. Bernie Sanders (I-Vt.) said Wednesday that the U.S. is moving toward an “oligarchic form of society" and urged Vice President Harris to make that message more central to her campaign. In doing ...30 minutes ago -
The Hill - Politics
We should all be carbon supremacists
Carbon supremacists should begin by demanding to interact with a human in all transactions, and by making this part of the discussion with our elected and appointed leadership.44 minutes ago -
The Hill - Politics
Republican AG Alberto Gonzales backs Harris, warns against Trump
Former George W. Bush administration Attorney General Alberto Gonzales endorsed Vice President Harris Thursday, citing in part the Supreme Court’s immunity decision in calling former President ...49 minutes ago - Donald Trump -
The Hill - Politics
Koch-affiliated Libre Initiative makes endorsements in Michigan, Connecticut
The Libre Initiative Action is rolling out endorsements for three tight congressional races on Thursday, hoping to win elections to the House and Senate for Republicans in Michigan and Connecticut. ...1 hour ago