Talent Talk: Noncompete Agreements Are Illegal, Aren’t They?Talent Talk: Noncompete Agreements Are Illegal, Aren’t They?

If I had a dollar for everyone who has informed me that noncompete agreements are now illegal or unenforceable in the United States, well, I’d only have five or six dollars but that is enough to tell me there is some confusion on that topic: What has happened? What is happening now? Where are we likely to end up?

Last year we reported that the Federal Trade Commission (FTC) had proposed a new rule that would ban employers from imposing noncompetes on workers. After going through the administrative process, on April 23, 2024, the FTC issued a final rule that would ban noncompetes nationwide, with very limited exceptions.

A 570-page document.

The final rule is set to go into effect on Sept. 4, 2024. That rule is readily available online if you would like to read it. It’s 570 pages so in the spirit of full disclosure, I have not read it, and probably neither has anyone at the FTC, but I digress.

That is the story a lot of people have heard, and why they believe that noncompete agreements will soon be illegal. But as someone I admired as a young man, Paul Harvey, used to say: “Now, for the rest of the story.” 

Before the ink was dry on the FTC’s rule, legal challenges were launched and have been making their way through the courts. I’m aware of three — two from private companies and, probably the most noteworthy, one from the US Chamber of Commerce. Among other things these lawsuits allege that the FTC lacked the constitutional and statutory authority to make the final rule.

Powerful organizations oppose ban.

While not a party to the lawsuits, numerous organizations have lined up with the Chamber of Commerce in opposition to the FTC’s proposed ban. Referred to as amici (friends of the court), these include powerful organizations such as the National Retail Foundation, National Association of Manufacturers, American Investment Council, and Society for Human Resource Management.

Companies should be prepared to comply with the final rule should it become effective in September but given the level of opposition and the complexity of the legal issues, that seems unlikely. We will continue to follow this story and provide an update if the courts act.