Key takeaways
- The FTC voted 3-1 to withdraw its appeals of federal district court decisions that invalidated its employee non-compete rule, with Commissioner Mark R. Meador voting in favor along with Chair Ferguson and Commissioner Holyoak.1
- Republicans Chair Andrew Ferguson and Commissioner Melissa Holyoak, both of whom had dissented from the FTC decision to issue the rule in the first place issued a statement in connection with the decision to withdraw the appeals.2 Republican Commissioner Meador wrote a separate concurring statement.3 Democratic Commissioner Rebecca Slaughter issued a dissenting statement.4 The split highlights differing views within the Commission on the agency’s rulemaking authority and the FTC’s approach in evaluating the competitive effects of employee non-compete agreements.
- Both the Texas and Florida district courts concluded that the FTC lacked statutory authority to promulgate a nationwide rule to ban nearly all employee non-compete agreements—both retrospectively and prospectively. The FTC’s withdrawal of its appeals can be perceived as tantamount to an endorsement of those decisions.
- In their statement, Chair Ferguson and Commissioner Holyoak reiterated their view that the rule’s “illegality was patently obvious” from the outset,5 while Meador characterized it as “substantively overbroad” and an ill-advised use of agency resources.6 Slaughter “strongly objected,” calling the withdrawal a betrayal of workers and claiming that the rule had overwhelming public support—characterizing more than 95% of the public comments received on the rule as supportive.7
- On the day prior to withdrawing its appeals, the FTC initiated a public inquiry “to better understand the scope, prevalence, and effects” of employee non-compete agreements.8
- On the same day as announcing the withdrawal of its appeals, the FTC issued a complaint and proposed resolution to resolve its challenge against overbroad employee non-compete agreements.9 The case highlights the FTC’s continued willingness to pursue targeted enforcement actions where it views employee non-competes as overbroad or anticompetitive.
In depth
On April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 to issue its final rule declaring nearly all employer-employee non-compete agreements as presumptively representing an "unfair method of competition" in violation of Section 5 of the FTC Act.10
The rule faced immediate challenges. In August 2024, a Texas federal district court issued a nationwide injunction preventing enforcement of the rule after determining that the FTC lacked the authority to issue it, and finding the rule to be “arbitrary and capricious.”11 Later in the same month, a Florida federal district court granted a preliminary injunction that prohibited enforcement against named plaintiff.12 In contrast, a Pennsylvania district federal court upheld the FTC’s rulemaking authority to establish the rule.13 Following the decisions by the federal courts in Texas and Florida, the Pennsylvania plaintiffs voluntarily dismissed their challenge.14
The FTC appealed the Texas15 and Florida16 rulings prior to the 2024 Presidential election. But, now under Republican leadership (including two Commissioners who had voted against the FTC issuing the rule as an initial matter), the FTC has acceded to the vacatur of its employee non-compete rule.
In their statement, Chair Ferguson and Commissioner Holyoak emphasized that the FTC “patently lacked statutory authority” to impose a nationwide ban. Commissioner Meador concurred. By contrast, Commissioner Slaughter dissented. Apart from substantive concerns with the decision, Commissioner Slaughter raised procedural issues. Specifically, Commissioner Slaughter contended that the decision to withdraw the appeals does not void the FTC’s rule, and asserts that compliance with the Administrative Procedure Act is required to withdraw the rule. Absent that, future leadership at the FTC may decide to revive the rule, in Commissioner Slaughter’s view.
Notably, on the very same day that it withdrew its appeals, the FTC filed a complaint challenging a large U.S. employer’s restrictive non-compete agreements with nearly 1,800 employees17. Those non-compete agreements allegedly prohibited the employees from working in the same industry nationwide for one year after they left the company’s employ18. Under the proposed consent order, the company must cease enforcing its existing employee non-compete agreements, notify employees they are no longer bound by the agreement, and avoid imposing such restrictions in the future, with narrow exceptions.19 The FTC leadership stressed that the action illustrates the agency’s ongoing focus on anticompetitive labor practices.20
Separately, on the previous day, the FTC announced a new public inquiry into the prevalence and effects of employee non-compete agreements.21
The FTC’s new public inquiry into employee non-compete agreements and its announced challenge indicate that the withdrawal of its appeals does not mean that the FTC is abandoning scrutiny of employee non-compete agreements. Companies should continue to monitor enforcement of terms in their existing employee non-compete agreements and carefully consider the scope of any new restrictions they intend to impose. Labor issues remain an enforcement priority for the FTC—meaning the scope and parameters of employee non-compete agreements remain an important part of any antitrust compliance reviews.
1 Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule | Federal Trade Commission.
2 Statement of Chairman Andrew N. Ferguson Joined by Commissioner Melissa Holyoak Regarding Ryan, LLC v. FTC.
3 Statement of Commissioner Mark R. Meador In the Matter of Non-Compete Clauses.
4 Dissenting Statement of Commissioner Rebecca Kelly Slaughter Regarding the Dismissal of Appeals in Noncompete Rule Litigations.
5 Statement of Chairman Andrew N. Ferguson Joined by Commissioner Melissa Holyoak Regarding Ryan, LLC v. FTC.
6 Statement of Commissioner Mark R. Meador In the Matter of Non-Compete Clauses.
7 Dissenting Statement of Commissioner Rebecca Kelly Slaughter Regarding the Dismissal of Appeals in Noncompete Rule Litigations.
8 Federal Trade Commission Issues Request for Information on Employee Noncompete Agreements | Federal Trade Commission.
9 Complaint.
10 United States: The FTC bans nearly all employer-employee noncompetes except those given as part of a bona fide sale of business.
11 Order-Granting-SJ-Setting-Aside-Rule-Ryan-v.-FTC-N.D.-Tex.pdf
12 In Properties of the Villages, Inc. v. Federal Trade Commission, No. 5:24-cv-316-TJC-PRL.
13 ATS Tree Services, LLC v. Federal Trade Commission, No. 24-1743, 2024 WL 3511630 (E.D. Penn. July 23, 2024).
14 On October 4, 2024, ATS Tree Services, LLC, filed a notice of voluntary dismissal in the U.S. District Court for the Eastern District of Pennsylvania
15 On October 18, 2024, the FTC filed a Notice of Appeal of the opinion and order to the Fifth Circuit, Ryan, LLC v. FTC, No. 24-10951 (5th Cir.)
16 On August 15, 2024, the FTC filed a Notice of Appeal in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316 (11th Cir.)
19 Complaint.
20 Id.
21 Decision and Order.
22 FTC Takes Action to Protect Workers from Noncompete Agreements | Federal Trade Commission.
23 Federal Trade Commission Issues Request for Information on Employee Noncompete Agreements | Federal Trade Commission.
