The Federal Trade Commission is moving to vacate its rule banning noncompete agreements, reversing what was seen as a signature accomplishment of the commission under President Joe Biden.
Noncompetes are employment agreements that prevent workers from taking new jobs with a competing business or starting one of their own, usually within a certain geographic area and timeframe after leaving their job.
The ban, championed by former FTC Chair Lina Khan, was finalized in 2024 but never took effect. Following a lawsuit brought by the Dallas-based tax services firm Ryan LLC, a federal judge in Texas found that the FTC had likely exceeded its authority in issuing the ban and halted it nationwide.
Last fall, the Biden administration appealed that ruling to the 5th Circuit Court of Appeals. But in March, the Trump administration asked the court for a 120-day pause on the appeal. The government's attorneys cited the changeover in administration and comments made by new FTC Chair Andrew Ferguson that the agency should reconsider its defense of the rule.
Then in July, the Trump administration told the court it needed still more time. The court approved another 60-day pause that was to end Sept. 8.
Late Friday afternoon, just ahead of that deadline, the FTC announced it had voted 3-1 to dismiss the appeal and take steps to vacate the rule.
"The Rule's illegality was patently obvious," wrote Ferguson in a joint statement with fellow Republican commissioner Melissa Holyoak. "It preempted the laws of all 50 states and actively displaced hundreds of existing laws across 46 states."
The dissenting vote was cast by Rebecca Kelly Slaughter, whom Trump had tried to fire earlier this year. Now the lone Democrat on the commission, she returned to her seat Wednesday following a ruling from the Court of Appeals for the D.C. Circuit.
30 million people bound by noncompetes
The FTC has estimated that some 30 million people, or 1 in 5 American workers, from minimum wage earners to CEOs, are bound by noncompete agreements.
The agency's rule, narrowly approved by the commission along party lines in April 2024, would have invalidated nearly all existing noncompetes and banned new ones except in rare circumstances. Khan said because workers would be able to freely pursue new opportunities without the fear of being taken to court by their past employers, it could lead to increased wages totaling nearly $300 billion per year and the annual creation of 8,500 new businesses.
From the business community, there was immediate pushback. In its lawsuit, Ryan LLC argued that the noncompete ban would inflict irreparable harm by enabling its employees to leave for the competition, potentially taking with them valuable skills and information gained on the job. The U.S. Chamber of Commerce, which joined Ryan's lawsuit, argued that the rule constituted an unlawful overreach of the FTC's authority and warned it would harm the economy.
Ferguson, one of two Republican commissioners on the FTC at the time, voted against the rule, arguing that the FTC lacked the authority to issue a nationwide prohibition on a centuries-old business practice. In his written dissent, he called the ban "by far the most extraordinary assertion of authority in the Commission's history" and a violation of the Constitution.
Still, since becoming FTC chair under Trump, Ferguson has made clear he's no fan of noncompete agreements.
"Noncompete agreements can be pernicious," he wrote in his statement released Friday. "They can be, and sometimes are, abused to the effect of severely inhibiting workers' ability to make a living."
Earlier this year, Ferguson told Fox Business that one of his top priorities would be, instead of a blanket ban, to send FTC enforcers out looking for noncompetes and no-poach agreements that violate the Sherman Act, the 1890 law prohibiting activities that restrict competition in the marketplace.
On Thursday, the FTC gave an example of the type of enforcement it now plans to pursue. The commission announced it had ordered the country's largest pet cremation business to stop enforcing noncompetes against its nearly 1,800 employees.
While acknowledging that kind of enforcement is important, Slaughter says it's no substitute for a nationwide rule.
"It does nothing to help the person working at the hair salon in Minnesota, or the engineer in Florida, or the fast food worker in Washington," she says. "Those people deserve protection too."
The FTC this week also invited the public to come forward with information to help the commission "better understand the scope, prevalence, and effects of employer noncompete agreements, as well as to gather information to inform possible future enforcement actions," according to a press release.
Slaughter points out that during the rulemaking process, the FTC received 26,000 public comments on noncompetes, almost entirely in support of a nationwide ban.
An architect of the noncompete rule warns the enforcement strategy will fail
Elizabeth Wilkins, Khan's former chief of staff and one of the architects of the FTC's noncompete rule, predicts Ferguson's plan for going after noncompetes using agency enforcers will prove woefully insufficient.
"The FTC has something like 1,400 employees to police the entire economy — not just workers, not just labor markets, but everything," says Wilkins, who is now president and CEO of the left-leaning Roosevelt Institute.
Wilkins notes that even in states that have passed their own laws making noncompete agreements unenforceable, companies are still using them.
"You find them almost as often as you do in states where they are enforceable, which is to say workers don't know their rights," says Wilkins. "A clear and simple ban on noncompetes is, to my mind, the only way to truly protect workers."
A noncompete at a real estate company presents a hard choice
In Grand Junction, Colo., Rebecca Denton signed a noncompete when she took a job as a transaction coordinator with a real estate company in 2019.
Finding herself overworked during the pandemic-era surge in housing sales, she wanted to quit her job, which involved handling all the paperwork for closings. But there was a problem. Because of her noncompete, she knew she wouldn't be able to do similar work in a three-state area for a year.
"You feel trapped," says Denton. "Shackled with a ball and chain."
Denton, who was 52 at the time, weighed her options. She decided on what she considered the lesser of two evils: Rather than remaining in a job that was running her into the ground with 16-hour days, she quit. She took on lower-paying gig work for a year, steering clear of the line of work in which she has expertise. She feels lucky to have had the financial resources to make that choice, a luxury she says many of her friends in real estate don't have.
In 2022, Colorado enacted a law significantly limiting the use of noncompetes. Denton was pleased and says she knows people who were able to leave their jobs as a result. She hopes the law will encourage employers to find other ways to retain workers.
"If you're a good company, and you are paying your employees at scale or better, and you're treating them well, you have nothing to fear of them leaving," Denton says. "You don't need a noncompete because they're going to happily stay right there."
