FTC Abandons Biden-Era Ban on Noncompete Agreements, Sparking Controversy Over Worker Protections and Business Regulations

The Federal Trade Commission (FTC) has decided to withdraw its rule that prohibits non-competition agreements, marking a significant shift in policy since the tenure of President Biden.

Non-competes are contractual obligations imposed on employees, restricting them from accepting jobs with competing businesses or starting their own ventures within a specified geographic area and timeframe post employment.

The ban, advocated for by former FTC chair Lina Khan, was finalized in 2024 but never came into effect. Following a legal challenge lodged by Texas-based tax services firm Ryan LLC, a federal judge in Texas determined that the FTC may have exceeded its authority in issuing the ban, leading to a nationwide halt.

Last fall, the Biden administration appealed this ruling to the 5th Circuit Court of Appeals. However, in March, the new administration requested a 120-day pause on the appeal, citing the changeover in leadership and statements made by current FTC Chair Andrew Ferguson expressing the need for reconsideration of the rule’s defense.

In July, the request for an extension was further prolonged by the administration. The court granted a 60-day pause that ended on Monday, but instead, the FTC announced a vote of 3-1 to dismiss the appeal and work towards vacating the rule.

The lone dissenting vote was cast by Rebecca Kelly Slaughter, who had initially been targeted for dismissal by the previous administration. Now the sole Democratic commissioner, she resumed her position earlier this week following a ruling from the D.C. Circuit Court of Appeals.

Approximately 30 million workers, ranging from minimum wage earners to CEOs, are believed to be bound by non-compete agreements according to FTC estimates. The agency’s rule, narrowly approved along party lines in April 2024, would have nullified most existing non-competes and prohibited new ones except in extraordinary circumstances.

Opposition from the business community was swift. In its lawsuit, Ryan LLC contended that the non-compete ban would cause irreparable harm by enabling employees to leave for competitors, potentially taking valuable skills and information with them. The U.S. Chamber of Commerce, which joined Ryan’s lawsuit, argued that the rule represented an unlawful expansion of FTC authority and posed a threat to the economy.

Ferguson, one of two Republican commissioners at the time, voted against the rule, asserting that the FTC lacked the power to institute a nationwide ban on a practice centuries old. In his written dissent, he described the ban as “an unprecedented assertion of authority” and a violation of the Constitution.

Since assuming the role of FTC chair under the previous administration, Ferguson has expressed skepticism towards non-compete agreements.

“Non-compete agreements can be detrimental,” Ferguson stated in his recent announcement. “They can, and sometimes do, severely limit workers’ employment opportunities.”

Earlier this year, Ferguson announced that instead of a blanket ban, the FTC would deploy its enforcement team to investigate non-competes and no-poach agreements found to be in violation of the Sherman Act, the 1890 law prohibiting activities that restrict competition in the marketplace.

On Thursday, the FTC revealed it had ordered the largest pet cremation business in the country to cease enforcing non-competes against its nearly 1,800 employees.

This week, the FTC also invited the public to submit information to aid the commission in understanding the scope, prevalence, and impact of non-compete agreements, which would help guide resource allocation.

During the rulemaking process, the FTC received over 26,000 public comments in support of the national ban on non-competes. Elizabeth Wilkins, Khan’s former chief of staff and one of the masterminds behind the FTC’s non-compete rule, anticipates that Ferguson’s plan to tackle non-competes using agency enforcers will fall short.

“The FTC has around 1,400 employees responsible for overseeing the entire economy,” says Wilkins, now president and CEO of the Roosevelt Institute. “Given this, a simple and clear ban on non-competes seems to be the most effective means of safeguarding workers.”

In Grand Junction, Colorado, Rebecca Denton signed a non-compete when she took up a job as a transaction coordinator with a real estate company in 2019. Overwhelmed by the surge in housing sales during the pandemic, Denton wanted to quit her job, which involved handling all paperwork for closings. However, her non-compete agreement restricted her from pursuing similar work within a three-state area for a year.

“You feel trapped,” says Denton. “Bound by an iron chain.”

Facing this predicament, Denton, who was 52 at the time, chose what she considered the lesser of two evils: opting to leave her job despite the long hours instead of staying in a role that was draining her. She took on lower-paying freelance work for a year, steering clear of the line of work she excelled in. Denton feels fortunate to have had the financial resources to make this choice, a luxury she believes many of her colleagues in real estate do not possess.

In 2022, Colorado passed a law significantly limiting the use of non-competes. Denton is pleased with the change and knows people who have been able to leave their jobs as a result. She hopes the law will encourage employers to find alternative ways to retain workers.

“If you are a reputable company, paying your employees competitively and treating them well,” says Denton, “you have no reason to fear them leaving.”