FTC’s Non-Compete Ban Blocked, But Gray Area Remains
In early 2023, the Federal Trade Commission (FTC) introduced and finalized a rule banning the use of non-competes. Employers, Chambers of Commerce and trade organizations rallied against the new rule claiming it was anti-employer, some going as far as calling it “blatantly awful.” As expected, the change was met with litigation and in August of 2024, the ban was struck down by a federal judge in Texas who claimed the FTC overstepped its authority by issuing the rule.
A non-compete (or non-competition agreement) is an agreement in which the employee agrees not to engage in conduct or activities that could increase competition for their employer. These types of arrangements are prevalent in finance, healthcare, design, tech and all types of sales or business development roles. They’re meant to protect things like trade secrets, privileged info and client retention. Non-competes aren’t the same as non-solicitation clauses. These agreements err more toward not calling on your former clients in your new role. Here’s an example of differentiating between the two.
Non-Compete: “Upon leaving ABC Company, you may not engage in a similar role for another insurance company within a 50-mile radius.”
Non-Solicitation: “Upon leaving ABC Company, you may not solicit (contact/call on) clients of ABC Company in your new role with another insurance company.”
For now, both are still on the table, and being able to continue utilizing them is a win for employers. So, are the non-competes you have in place enforceable? This is where some employers need to take the win with a grain of salt. Non-competes have never truly been 100% enforceable across the board. If a company employs someone in a very niche role, with specific knowledge about a limited subject matter, a non-compete telling that person they can’t work for a competitor within 1000 miles may not hold up. They are enforceable in Ohio as long as the agreement is “reasonable” in terms of geography, duration and specific business interest being protected. As many empolyers have learned with ADA, the word “reasonable” can be very subjective.
The FTC has already appealed this decision, and we’ll keep you updated as any changes occur.
