Did the Federal Government Ban Non-Competes?

May 1 2024

Amanda DeMatteis: Hi, Josh.

Josh Goodbaum: Hi, Amanda. What are we gonna talk about today?

DeMatteis: We’ve talked a lot on these videos about non-competes, but they just keep coming up in the context of Connecticut employment law and even employment law nationally. The FTC weighed in just this week with yet another update, so I thought we could talk to Connecticut employees about what is this update, what is the FTC, and what does this mean for them?

So, let’s start pretty basic: What is the FTC, and what happened this week regarding non-competes?

Goodbaum: The FTC is the Federal Trade Commission. It is a federal agency with jurisdiction over the whole United States to enforce our civil antitrust laws. It does two things: it issues regulations that concern competition, and it files lawsuits. So, when you see, for example, that there’s gonna be a merger between two big companies and the federal government is suing to stop that merger, odds are it is either the Federal Trade Commission – the FTC – that’s suing or it is the federal Department of Justice. But it’s one of those two; that’s what they do.

DeMatteis: And what did they do just this week regarding non-competes?

Goodbaum: By the time folks watch this video, it’ll probably be last week, but on April 23rd, the FTC issued a final rule that effectively bars non-competes nationally with very few exceptions. You remember we did a video now 16 months ago or so about a notice of proposed rulemaking that the FTC issued? This is part of the rulemaking or regulatory process. First, an agency says, “Hey, here’s what we’re planning to do. Public, tell us what you think,” and that’s what they did back in January 2023. They received over 25,000 comments from the public, from interested groups, from businesses, from individuals with non-competes, from all walks of life, from all professions. They digested those comments, and then they issued on April 23rd a final rule.

The final rule says for all of the businesses over which we have jurisdiction – and that’s not every organization in the United States, we can get to that, but for all the businesses over which we have jurisdiction – they’re not allowed to promulgate new non-competes or to enforce the non-competes that they currently have, except for in two circumstances.

One exception is for existing non-competes for senior executives, and those senior executives must be in policy-making positions – so think about the president or CEO of a company or other people at the C-suite level; this is not supposed to be for middle management.

The second exception is when somebody sells a business. So if you’re a dentist, for example, and you sell your dental practice to a different dentist, that sale – the transaction, the purchase and sale agreement – can include within it a non-compete that says, “You’re not gonna open a new dental practice next door.”

Those two are the exceptions to this rule. Otherwise, non-competes would be invalid – that would go for new non-competes and existing non-competes.

DeMatteis: This is great news. Is it the law yet, Josh?

Goodbaum: No, definitely not. For one thing, the law has a notice period associated with it. It is 120 days from when the rule will be published in the Federal Register – that’s where rules get published by the federal government. We don’t know exactly when that’s gonna occur, but it should be sometime very soon. So, the rule would go into effect, at the earliest, about the end of August 2024.

But, and it’s a big BUT, there is going to be litigation. In fact, there’s already litigation. The U.S. Chamber of Commerce, which is an interest group, a lobbying group that represents businesses nationally – by some accounts, it is the largest pressure group in the country – has already filed a lawsuit in Texas to enjoin this rule. Enjoin means to stop. So, if that lawsuit is successful, it would pause the rule, the rule would never come into effect, and there would be no change.

Right now – and this is important for Connecticut employees and employees nationally to know – nothing has happened. If you had a non-compete on April 22, 2024, you still have one. And until this rule goes into effect, nothing has changed. It is entirely possible, given the litigation strategy of the business lobby, that this rule will never go into effect, and nothing will change. It remains the case for employees in Connecticut that the way that your non-compete is analyzed by the courts is going to be through the five-factor reasonableness test that we have talked about and folks can find more information about it on our website.

If you had a non-compete, you still have it. This rule is not a reason to ignore your non-compete. You’re opening yourself up to a potential lawsuit. Now, every non-compete is different, all circumstances are different, and it’s good if you’re thinking about whether your non-compete is enforceable or potentially breaching your non-compete to talk to an employment lawyer before you do so.

DeMatteis: And we’ve talked quite a bit about legislation at the national level and right here in Connecticut, where a lot of great strides have been made to try to ban non-competes. So, this is another positive step – we’re just not there yet.

Goodbaum: We’re definitely not there yet. Now, there is a federal law that has been proposed. It’s a bill proposed by Senator Murphy, our home state senator here in Connecticut, and a senator from Indiana. It’s a bipartisan bill that would effectively ban non-competes nationally but it hasn’t gotten a ton of traction. We hope it’ll get more.

Likewise, there’s been a bill in Connecticut that’s been put forward by the governor, and for the last few terms, the legislature has debated it, but it hasn’t gotten over the finish line yet. So, if you’re a person who thinks non-competes are a problem, if you’re an employee who has a non-compete and you think it’s inhibiting your ability to go get a new, higher paying job to give more to the economy, to produce more for our state, consider giving a call to your member of the General Assembly and saying, “Hey, I know there’s a non-compete bill. I really think you should push that forward,” because the most likely way that non-competes are going to be regulated here in Connecticut is by a law passed by the Connecticut General Assembly and signed by the governor.

DeMatteis: And if you think it’s just one voice and it doesn’t matter, we can promise you, you are wrong.
Look at what the FTC did with those 25,000 comments – you should be one of those comments if you are interested in this. Pick up the phone, call your legislators on either a state or national level, and let’s see what else can be done.

But remember, Josh’s advice is so critical. If you had a non-compete on April 22, 2024, you still have one right now, and although this is good progress in the world of non-competes in employment law, we are not over the hump yet.

Thank you so much for watching. Thank you, Josh, for analyzing this for us and we’ll see you next time.

Goodbaum: Take care.

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josh goodbaum discussing the FTC's non-compete ban

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