The Federal Trade Commission voted 3-1 Tuesday to dismiss its appeals of court rulings that blocked the agency's Non-Compete Clause Rule, effectively abandoning its effort to ban most non-compete agreements nationwide. The decision represents a dramatic policy shift under new FTC leadership and delivers a victory to business groups that challenged the rule.
The FTC took steps to dismiss its appeals in *Ryan, LLC v. FTC*, No. 24-10951 (5th Cir.), and *Properties of the Villages v. FTC*, No. 24-13102 (11th Cir.), and agreed to accept the vacatur of the Non-Compete Clause Rule. The move comes after district courts found that the FTC lacked statutory authority to issue such a broad prohibition on employment agreements.
Current FTC Chairman Andrew N. Ferguson and Commissioner Melissa Holyoak, who both dissented when the Biden administration originally issued the rule, led the effort to abandon the appeals. At the time of the rule's adoption, both commissioners argued that the FTC lacked the statutory authority to implement such a sweeping ban on non-compete clauses.
The Non-Compete Clause Rule, issued under the Biden administration, would have prohibited most employers from entering into non-compete agreements with workers and required companies to rescind existing non-compete clauses. The rule was designed to increase worker mobility, boost wages, and promote entrepreneurship by preventing employers from restricting where their former employees could work.
Business groups immediately challenged the rule in federal court, arguing that the FTC exceeded its authority in attempting to regulate employment contracts on such a broad scale. A federal district court agreed with these challenges, finding that the FTC does indeed lack the statutory authority to issue the rule and prohibited its enforcement.
The 3-1 commission vote to dismiss the appeals reflects the changed composition of the FTC under new leadership. Chairman Ferguson issued a statement joined by Commissioner Holyoak explaining their position, while Commissioner Mark R. Meador issued a concurring statement supporting the decision to abandon the appeals.
Commissioner Rebecca Slaughter issued the lone dissenting statement, presumably arguing that the commission should have continued fighting for the rule in the appellate courts. Slaughter was a key supporter of the original rule under the Biden administration's more aggressive antitrust enforcement approach.
The decision has significant implications for millions of American workers currently subject to non-compete agreements. Studies suggest that between 18% and 20% of U.S. workers are bound by such agreements, which typically prevent employees from working for competitors or starting competing businesses for a specified period after leaving their jobs.
Proponents of the rule argued that non-compete clauses suppress wages, limit job mobility, and stifle innovation by preventing workers from freely moving between employers or starting new businesses. They pointed to research suggesting that non-compete agreements reduce worker earnings and slow economic dynamism.
Business groups and employers, however, contended that non-compete agreements serve legitimate purposes, including protecting trade secrets, preserving customer relationships, and encouraging companies to invest in worker training. They argued that a blanket federal ban was unnecessary given that many states already restrict or prohibit certain types of non-compete agreements.
The FTC's retreat on the non-compete rule signals a broader shift in the agency's approach to antitrust and competition policy. Under the Biden administration, the FTC pursued an aggressive enforcement agenda, challenging mergers more frequently and attempting to expand the scope of antitrust law through rulemaking.
The new leadership appears more inclined toward traditional antitrust enforcement focused on specific cases rather than broad regulatory rules. This approach aligns with business community preferences for case-by-case analysis rather than sweeping prohibitions.
The abandonment of the non-compete rule appeals may also reflect practical considerations about the likelihood of success in the circuit courts. With district courts already finding that the FTC lacked authority to issue the rule, the agency may have concluded that continuing the appeals would be futile and resource-intensive.
For employers, the decision provides clarity and eliminates the uncertainty that surrounded the rule's implementation. Companies can now proceed with confidence that existing non-compete agreements remain enforceable, subject to applicable state law limitations.
Workers currently bound by non-compete agreements will continue to be subject to state law variations. Some states like California already prohibit most non-compete agreements, while others enforce them more broadly. The patchwork of state laws means that worker protections will continue to vary significantly depending on location.
The FTC's decision effectively returns non-compete regulation to the states, where it has traditionally resided. This outcome satisfies business groups' preference for state-level regulation and avoids the disruption that would have resulted from a nationwide prohibition.
Looking ahead, the debate over non-compete agreements is likely to continue at the state level, where lawmakers may consider their own restrictions on such agreements. Some states may be emboldened to act more aggressively on non-compete reform, while others may maintain the status quo.