The Federal Trade Commission (FTC) recently announced a rule that bans non-compete agreements. Non-compete agreements contractually restrict workers from joining or starting a competing business after leaving their employment. These agreements commonly designate how long and where these controls apply. These agreements are used by employers across all sectors of the workforce, the FTC estimates that 30 million workers in the United States are subject to one.
It is anticipated the ban will promote competition, leading to approximately 8,500 new businesses created annually and increasing individual employee earnings by an average of $524 per year.
There are numerous legal concerns with the FTC’s rule. The Supreme Court previously held the FTC does not have jurisdiction over non-profit entities unless they provide substantial economic benefit to their for-profit members. Yet, the FTC said non-profit or tax-exempt status is not dispositive of whether the entity is subject to the ban, which makes application of the ban confusing.
The FTC already faces legal challenges arguing that only Congress can make a rule with such a significant economic impact. The rule as it currently stands will nullify thousands of contracts and may be unconstitutional for exceeding the FTC’s statutorily permitted powers. Pending Supreme Court cases are considering restraining the implicit authority of federal agencies like the FTC, rendering predictions for the outcome of the rule difficult. Ultimately, the Court may strike down the FTC’s rule as an unconstitutional exercise of power. The rule becomes effective around August 20th, 2024, but is expected to be delayed by legal battles.
The article was written by JGL principal Brian Markovitz and Deborah Jaffe, who is a law clerk at the firm.
