Integrators

Legal Brief: Update on the FTC’s Non-Compete Ban

Feb. 13, 2025

TLDR: The ban has been struck down and the old rules remain in place for now

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This article originally appeared in the February 2025 issue of Security Business magazine. Feel free to share, and please don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.

The Skinny

FTC's Non-Compete Ban Overturned: A federal court in Texas ruled that the FTC lacked the authority to enforce a nationwide ban on non-compete agreements, deeming the rule arbitrary and capricious.
Appeal Pending, But Ban Unenforceable: The FTC has appealed the decision, but until it succeeds, non-competes remain legal and enforceable under previous laws.
Future Legal Challenges Expected: While the FTC's broad ban may not take effect, plaintiffs may continue challenging non-competes on antitrust grounds, leading to case-by-case legal battles.

As I noted in June, a pending rule by the Federal Trade Commission (FTC) banning most non-compete clauses in employment contracts was likely to be challenged in court. Indeed, the rule was successfully challenged.

Before we get to the analysis, it makes sense to outline the most important elements of the rule. The rule prohibited employers from imposing non-competes on workers (including independent contractors and unpaid workers) – by banning all terms or conditions of employment which prevented or penalized a worker from either seeking or accepting work in the United States with a different person, or operating a business in the United States, after their employment ends.

The rule would require employers to give notice that existing non-competes are no longer enforceable; however, it created exceptions allowing for the enforcement of existing non-compete agreements with certain senior executives that were entered into before the rule’s effective date.

The rule also exempted senior executives if they are in a policy-making position; and earned at least $151,164 in the preceding year (or the equivalent annualized for partial year employment). Other exceptions indicated that the rule did not apply to non-competes entered into in connection with a bona fide sale of business, and/or lawsuits regarding an existing non-compete that arose before the rule’s effective date.

The rule superseded all contrary state laws.

The Ruling

On Aug. 20, a federal court in Texas set aside the non-compete rule and held that the FTC cannot enforce it. This judicial ruling applies nationwide.

The federal court held that the FTC exceeded its statutory authority in implementing the rule, finding that Congress did not grant the FTC the affirmative authority to make substantive rules regarding unfair methods of competition. The court also held that the rule is arbitrary and capricious, because the ban did not match the evidence or reasoning cited by the FTC. Further, the FTC's reasoning did not consider the benefits of non-compete agreements or narrower alternatives to the rule.

The federal court held that Congress did not grant the FTC the authority to make rules regarding unfair methods of competition.

As expected the FTC has appealed this ruling. While the appeal is pending, the rule cannot be enforced.

Moving Forward with Caution

Unless and until the FTC is successful on appeal, non-competes return to the status quo and are legal and enforceable on the same terms as they were before the FTC passed the non-compete rule. There is no need for employers to give notice that existing non-competes are no longer enforceable and no need to discontinue the use of non-competes, where appropriate, for high-value employees.

In fact, the chances of the rule ever being enforced may now be worse, because the U.S. Supreme Court in June overruled long-standing precedent under which courts afforded deference to a federal agency’s interpretation of its own power. Without such deference being given to the FTC, the appellate court may be even less inclined to reverse the court’s decision in Texas.

This is good news for employers – for now. Meanwhile, while the FTC ban languishes, plaintiff’s lawyers are devising new ways to seek to invalidate non-competes such as arguing that such restrictions stifle competition and violate antitrust law.

These novel theories will play out case by case – and be far less sweeping than the ban the FTC sought to impose.

About the Author

Timothy J. Pastore, Esq.

Timothy J. Pastore Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, he was an officer and Judge Advocate General (JAG) in the U.S. Air Force and Attorney with the DOJ. [email protected] • (212) 551-7707

Meet Timothy J. Pastore

Timothy J. Pastore, Esq., is the newest columnist to join the Security Business magazine family. He is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department.

Before entering private practice, Mr. Pastore was an officer and Judge Advocate General (JAG) in the U.S. Air Force and a Special Assistant U.S. Attorney with the U.S. Department of Justice. As a JAG, in particular, Mr. Pastore was legal counsel to the Air Force Security Forces and Air Force Office of Special Investigations.

Mr. Pastore has represented some of the largest companies in the security industry, including Protection One, Comcast, Charter, Cox, Altice, Mediacom, IASG, CMS and others. He regularly provides counsel on risk management, contracting, operations, licensing, sales practices, etc. Mr. Pastore also has served as lead counsel in courts throughout the country in dozens of litigation matters involving the security industry.

Among other examples, Mr. Pastore led the successful defense at trial of cable giant Comcast in a home invasion case in Seattle, Washington. The case received significant press attention and was heralded by CVN as a top-ten defense verdict.

Mr. Pastore is a graduate of Bucknell University and Boston College Law School.

Reach him at (212) 551-7707 or by e-mail at [email protected].