The Advisors' Blog

On Friday, the FTC announced that it is voluntarily dropping its appeals in two court cases where employers had challenged the legality of the 2024 rule banning most non-competes and won a nationwide injunction. The Fifth Circuit issued its dismissal order yesterday. The day prior, the FTC had charged a company with violating Section 5 of the FTC Act, alleging that the company’s policy to require nearly all newly hired employees to sign 12-month post-employment non-compete agreements was an unfair method of competition.

This White & Case alert notes that the consent order carves out “the use of non-compete agreements for directors, officers and senior employees in connection with the grant of equity or equity-based awards, non-competes entered into in connection with the sale of a business by the pre-existing equity holders of such business, as well as for certain individuals where non-compete agreements are justified to protect legitimate business interests.” It highlights a few key takeaways from these developments:

– The administrative complaint shows that protecting workers from what it views to be the unfair use of post-employment non-compete agreements remains a priority for the FTC.

– Employers that broadly use non-compete agreements, regardless of employee title, compensation or ability to cause harm to the employer, may be susceptible to enforcement action.

– A consent order and resulting compliance requirements can be burdensome.

It stresses that a tailored approach to the use of non-competes could potentially stave off FTC investigation or action.

– Meredith Ervine