Russell Beck‘s article about the Federal Trade Commission’s rule restricting noncompete agreements nationwide for most workers was recently published by The Hill.

The op-ed is titled “Noncompete Ban: FTC needs a pause, companies need a plan.”

The article, available in full below, discusses the FTC’s plan to largely forbid the use and enforcement of non-compete agreements. On August 20, 2024, a federal judge in Texas issued a ruling blocking the FTC’s noncompete ban.

ompanies in this country have been using noncompete agreements for over 200 years. Sometimes the use has been necessary. Sometimes it has not. While I am no fan of noncompetes in the abstract, they are necessary for some workers in some roles in some industries.

Recognizing that need, every state except four (California, Minnesota, North Dakota and Oklahoma) permits companies to use reasonable noncompetes to protect trade secrets. Many states also permit the use of noncompetes to protect customer relationships and other legitimate business interests.

Despite the impression that there is a groundswell of legislation outlawing noncompetes, that is simply not the case. With the exception of Minnesota, no state considering a noncompete ban has enacted one in the last 100 years. To the contrary, each of the last three governors to be presented with a bill to ban noncompetes (New York, Maine and Rhode Island, in that order) has vetoed it. Even Washington, D.C., which initially enacted a ban in 2021, vacated it before it took effect.

Yet companies now face a ban from a different authority: the Federal Trade Commission (FTC), which issued a rule banning noncompetes that will take effect on Sept. 4. This marks the first time in U.S. history that the federal government has broadly regulated noncompetes. In that regard, in a 2020 FTC “workshop” to consider whether to regulate noncompetes, panelists questioned whether the FTC had the authority to regulate noncompetes.

Nevertheless, the FTC proceeded to ban noncompetes, oblivious or indifferent to the harm that such a decision would cause, and in the face of great doubts about its authority. And now companies and employees around the country are experiencing that harm firsthand.

A federal judge in Texas recently held that the FTC’s rule is unlawful, while a federal judge in Pennsylvania disagreed, and said that the rule is lawful. Both courts’ decisions apply only to the parties in those lawsuits. So, until a court invalidates the rule nationally, companies of all sizes in almost every state are in a quandary: They will either need to comply with the rule, obtain relief from a court (preferably before the rule takes effect), or ignore the rule. None is a good option.

If companies comply with the rule, they will need to notify employees by Sept. 4 that their noncompetes are unenforceable. According to the FTC, that would mean that noncompetes will be invalidated for 30 million employees — a number which, like most of the FTC’s rule, is based on flawed research and grossly overstated. But the point remains: Millions of employees will be relieved of obligations that their employers paid for, and companies will lose an important tool for protecting their trade secrets and relationships with customers and employees.

Worse, if the rule is later vacated, companies that complied may have needlessly forfeited the ability to enforce an otherwise valid agreement. This is an outcome that the FTC has roundly ignored and presumably desires. But, in fairness, it should be avoided.

If companies sue the FTC, there is no guarantee of protection from a court, or that such protection would come before Sept. 4, the date by which companies must comply with the rule. Additionally, to the extent that companies might be concerned that suing in isolation would render them a target for future FTC scrutiny, a massive wave of individual lawsuits would minimize that concern. It could also increase the odds that a court would issue a nationwide injunction.

If companies ignore the rule in whole or in part, they do so at their own peril, potentially facing enforcement actions by the FTC or lawsuits from employees for the continued use of void noncompetes.

Of course, all this uncertainty and needless waste of resources could be avoided if the FTC were to simply acknowledge the obvious and incontrovertible harm to companies and workers from the rule’s looming effective date, and voluntarily suspend it, pending a final decision in the courts. Other than to make a political point and to unfairly force companies to comply with a likely-to-be-invalidated rule, there is no reason not to postpone the rule’s effective date while the matter is being resolved by the courts.

FTC Chair Lina Khan recently told Congress that a core pillar of her agenda is faithfulness to the text of the FTC Act. Given that a court has cast serious doubt on the lawfulness of the rule, Khan should be the first in line to push the FTC to voluntarily stay the rule’s effective date. It would be the right thing to do for the good of companies and workers alike.  

Russell frequently writes about current efforts to regulate noncompete agreements. He was featured on NPR and quoted in the New York Times discussing federal regulatory efforts targeting noncompete agreements. In January 2023, Russell wrote an article for Law360 called “Companies Must Brace For FTC’s Overbroad Noncompete Rule.” Russell recently published a helpful guide for employers seeking to protect confidential information following implementation of a nationwide noncompete ban.

For up-to-the-minute analysis of legal issues concerning trade secrets and noncompete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

Beck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Russell Beck’s work in this area is well recognized, and includes:

  • Over thirty years of experience working on trade secret, noncompete, and unfair competition matters
  • Assisting the Obama White House as part of a small working group to develop President Obama’s Noncompete Call to Action
  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (6th ed., MCLE, Inc. 2021), used by other lawyers to help them with their noncompete matters
  • Authoring the book Trade Secrets Law for the Massachusetts Practitioner (1st ed. MCLE 2019), covering trade secrets nationally, with a focus on Massachusetts law
  • Drafting and advising on legislation for the Massachusetts Legislature to define, codify, and improve noncompetition law
  • Teaching Trade Secrets and Restrictive Covenants at Boston University School of Law
  • Founding and administering the award-winning blog, Fair Competition Law
  • Establishing and administering the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 1,660 and 870 members, respectively, around the world
  • Founded and chaired the Trade Secret / Noncompete Practice for an AmLaw 100 firm

In addition, Russell was honored for his work in this area of law in the 2020 Chambers USA Guide, which stated that Russell Beck is “an expert in the field of trade secret and restrictive covenant law,” and is also noted for his “ability to adjust and come up with successful solutions.” Chambers noted that Russell “basically wrote the new Massachusetts statute on noncompetes” and that “he’s an expert in employee mobility and nonrestrictive covenants.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

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