Millions of unhappy Americans are forced to stay in jobs they don’t want due to noncompete clauses in their contracts with their current employers. “These noncompete provisions usually do not allow employees to work for competitor organizations within a certain geographic area for a certain period of time,” explains top attorney Omar Ochoa, founder of Omar Ochoa Law Firm in McAllen, Texas.
The FTC recently moved to ban these noncompete clauses, but the courts have thrown that ban into doubt. America Daily Post turned to Ochoa for an explanation of this controversial issue and its current state of litigation.
Why the FTC wants to ban noncompetes
On January 5, 2023, the FTC proposed a new rule that would ban certain kinds of noncompete clauses from employment contracts. It voted to finalize this ban on April 23, 2024.
Why? According to Ochoa, the government agency has found that noncompete clauses keep employees stuck in positions they would otherwise leave.
“A lot of times, these noncompetes can be pretty burdensome in terms of not allowing somebody who developed expertise and knowledge in a specific area to transfer to another similar company that competes with the one they are currently working for,” he says. “The FTC’s goal in banning this is to allow more freedom of movement of employees between companies.”
Indeed, the FTC’s announcement of the ban described noncompetes as an “often exploitative practice” that infringes on the “fundamental freedom of workers to change jobs.” Approximately 30 million Americans have noncompete clauses in their contracts.
The FTC has also criticized noncompetes for reducing competition in the marketplace.
How noncompetes affect the markets
FTC Chair Lina M. Khan states, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism.”
Freed from the noncompete clauses in their contracts, some employees would form enterprises of their own. According to the agency’s estimates, banning noncompetes would promote the creation of 8,500 new businesses each year.
But that’s not all. The FTC also predicts that ending noncompetes would increase workers’ wages by $524 per year on average. Moreover, healthcare costs would decrease by as much as $194 billion over the next ten years, and the number of new patents would skyrocket by tens of thousands each year.
Implications of the FTC’s ban for employers
If the courts eventually allow the FTC to enforce its ban on noncompetes, then Ochoa predicts that employers would need to compete even more fiercely than ever for high-performing employees.
“If it becomes easy for key employees to move between companies, then employers are going to face more pressure to prevent that from happening,” he notes. “Traditionally, they have retained employees by offering more compensation. That’s why the ban could be expected to raise organizations’ expenses for labor.”
As a result, Ochoa foresees that corporate leadership would tend to restrict the amount of proprietary knowledge they would be willing to share with employees. “They may institute new procedures to give sensitive data or information only to employees with more long-term potential with the company,” he says.
Court rulings have made it far from certain that the FTC’s ban will go into effect, however.
The State of the FTC’s case
“There’s no guarantee this FTC rule will ever go into place,” Ochoa warns, “and even if it does go into place, there’s no guarantee it’ll happen anytime soon.”
That’s because the FTC’s finalization of the rule was met almost immediately with legal challenges. According to Ochoa, the ban’s adversaries argue that noncompetes shield companies’ proprietary information from their competitors.
On August 20, 2024, a federal court ruled against the ban nationwide. While the FTC could appeal that decision, the case would go to the 5th Circuit Court in New Orleans, which has a reputation for being one of the most conservative benches in the country.
In addition, other cases are making their way through the court systems in Florida and Pennsylvania, raising the possibility of a circuit split, in which different courts render differing decisions.
Another important development was the U.S. Supreme Court’s June decision to overturn the Chevron deference, which weakened the FTC’s legal position. The Chevron deference had affirmed the authority of subject-matter experts at government agencies to interpret ambiguous legal language. In overturning that doctrine, the U.S. Supreme Court seized the power to interpret the law away from the executive branch of government and gave it to its own judicial branch.
“Agencies don’t have as much freedom as they used to to interpret federal statutes,” Ochoa explains. “As a result, challengers now have even more ammunition to claim that the FTC overreached by issuing this noncompete rule.”
The Ban’s survival is “very much in doubt”
Ochoa expects to see many more legal challenges to the FTC’s ban for the foreseeable future. “It’s going to take a long time for this to get through the courts, and whether or not the rule actually survives is very much in doubt,” he says. “Banning noncompetes might require Congress to pass legislation.”