Policy & Mop: Federal Trade Commission's Non-Compete Ruling is NO MORE*

What: The FTC's Ban on Non-Competes (from 4/23/24)

Why: US District Court for the Northern District of Texas

Latest Update: 8/20/24 - Legal challenge stops the FTC's Rule and it's On HOLD (with an asterisk). 

Welcome to another installment of Policy & Mop. In this post, I give an update on the Federal Commission's April ruling to Non-Compete clauses. As we initially posted on 2/7/2024 and later updated that April, the Federal Trade Commission (FTC) passed a Rule through a panel of 5 people that banned non-competes nationwide. 

Why this ruling? While some non-competes out there are completely fair and equitable, there are some employers who abuse this and make contracts so restrictive that it makes it unfair to the worker and can even cause economic injury.

Last week a poster in one of these FB groups posted that she started her own cleaning company after her employment was terminated. She kept within her own lane. She didn't poach her former employer's clients. There was no unfair advantage with the information she held. But to her surprise, she received a cease and desist letter from her former employer after they discovered she started her own cleaning business. This letter was dated in December 2024, so recently. The letter said she can start her own cleaning business,  but she can't operate in her own county which is where her former employer is located. 

She posted all of this and I confidently went to post that this isn't legal, thanks to the FTC's ruling. But before I submitted the post I did some fact checking. That's when I learned that the FTC Ruling was reversed in Ryan LLC v FTC. The ruling has been set aside and blocked nationwide. 

Now I put in the latest update an asterisk. Why? It's making its way through the courts. It doesn't look good though. It would take the FTC's losing an appeal in the 5th Circuit to keep non-competes legal. Plus there are other cases making their way outside of the 5th Circuit Court of Appeals. If the FTC wins any of those cases, then it could face a showdown in the US Supreme Court. 

Courts aside, another reason for the asterisk is that the FTC can still hear cases on a case by case basis. So in my FB poster example above, she can apply to have her case heard by the FTC themselves and potentially win. Also, some states, like my Virginia, have very restrictive rules on non-competes. Unless Virginia law is challenged, I cannot restrict any employee from working anywhere, including for my clients directly. So check out your state's laws on this. BTW, the poster was from Ohio. Ohio does allow non-competes and are pro-employer. However, there are caveats in their laws and I think she has a shot if she challenged it legally. 

The History:

January 5, 2023: The Federal Trade Commission proposes a new Rule banning non-competes. A mandatory question and comment period on the proposed rule begins.

April 23, 2024: After extending the public comment period, the FTC ruled in a 3-2 decision that non-competes aren't allowed nationwide. The ban was set to take place 9/4/2024.

August 20, 2024: Ryan LLC vs FTC put a legal hold on the implementation of the FTC's non-compete Rule. 

Side note here...there are other cases prior to Ryan LLC that stopped the FTC's ruling. These cases were out of Pennsylvania and Florida. However, the court didn't issue a summary judgment applying nationwide like the Ryan case. These could still be appealed and end up in Circuit court. If any of the Circuit Courts' decisions differ, then it could head to SCOTUS. Stay Tuned.

My Synopsis:

I like the spirit of the FTC's actions but I felt this should have been left to either state control (as it was before the ruling) or set it up with the legislative through Congress. The Executive Branch shouldn't be the only ones deciding on hot topics like these. I think the FTC's ruling will be permanently voided.

Legal Mumbo Jumbo:

I'm not a lawyer and never played one on TV. Seek legal advice elsewhere. This blog series covers laws coast to coast and with the thousands of laws impacting us, our crack staff will never keep up with them. To make matters worse, the crack staff are stuck in the cracks. If you see an inaccuracy, let us know. See the Introductory post to Policy & Mop.