Mariya Mujahid
Associate Editor
Loyola University Chicago School of Law, JD 2026
On April 23rd, 2024, the Federal Trade Commission (FTC) announced a rule banning the use of noncompetes. The rule faced significant opposition and was blocked by a Texas federal court. The FTC under its current chair, Lina Khan, is fighting the ruling. However, President-Elect Donald Trump will likely effectively put an end to the FTC’s noncompete ban because of his own use of restrictive non-disclosure agreements (NDAs) that act as noncompetes and the stances of some of his megadonors.
What are noncompetes?
Noncompete agreements (NCAs) are contractual conditions that prevent workers from working or owning a business in the same area of business that they are currently employed. The purpose is generally to protect trade secrets, intellectual property, or procedures used to produce the business’s good or service that differentiates it from other businesses. While noncompetes are necessary in some situations, they tend to disfavor workers by providing less incentive for a company to treat its workers fairly. Additionally, noncompetes can be bad for industry growth because they restrict employees from launching their own businesses and seeking new career opportunities in the market or moving around within said market. Noncompetes have been egregiously overused by corporations within the last 20 years, and while the FTC’s blanket ban has received some pushback, four states, California, North Dakota, Minnesota, and Oklahoma, have fully banned noncompetes. The FTC estimates that 30 million workers, one of every five Americans, are subject to a noncompete.
FTC order and blocking by federal court
On April 23rd, 2024, the FTC announced its blanket ban on NCAs. Its chair, Lina Khan, stated that “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” and also declared that “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.” Under this rule, existing NCAs are no longer enforceable once the law goes into effect, except for NCA’s for senior executives. The rule was initially slated to become enforceable on September 4, 2024, however in Ryan, LLC v. FTC, the U.S District Court for the Northern District of Texas held that the FTC could not enforce the rule once it went into effect, but also did not have the authority to make the rule in the first place.
What does a Trump presidency mean for the noncompete ban?
President-elect Trump’s stance on the noncompete ban itself is not clear. However, as an avid user of noncompetes and a business-friendly candidate, it’s likely that his administration will put a stop to any noncompete ban if the fifth and third circuits do not stop it first. Trump’s NDAs are a thing of legend, and his noncompetes, not only in his own business, but for his campaign workers are tightly capped. In 2016, the noncompete located in the NDA that Trump Campaign workers signed had the following clause: ““Until the noncompete cutoff date you promise and agree not to assist or counsel, directly or indirectly, for compensation or as a volunteer, any person that is a candidate or exploring candidacy for federal or state office other than Trump and prevent your employees from doing so.” A worker for the Trump campaign could not work for any other campaign while the presidential race was occurring. The campaign’s NDAs were also restrictive in what staffers and volunteers could say after the campaign was over. Trump clearly has an affinity for restrictive employment agreements, and the noncompete ban has no shortage of critics who believe the ban will stifle investment, even within the FTC. It will be interesting to see the direction the fifth and third circuit take in determining whether the FTC is within its authority, given the Supreme Court’s recent overturning of the Chevron precedent. Workers deserve freedom and control over their careers. Although it looks like the noncompete ban has a short future under the incoming Trump administration, maybe lawmakers in the House and Senate can come up with an alternative.