Process | The Regulatory Review

A Nationwide Ban on Noncompete Clauses

Nicole Narea, Meghan O'Neill, and Michael Woods

A sweeping Biden-era rule banning non-compete agreements with workers promised to generate thousands of new businesses annually, increase worker wages, slash health care costs, and fuel innovation. It is now, however, effectively dead.

In 2024, a Texas federal court struck down the rule, concluding that the Federal Trade Commission (FTC) lacked authority to issue such a broad rule. In September 2025, following leadership changes at the FTC, the agency dropped its appeals of that decision, meaning that the rule never went into effect.

The rule would have made existing non-compete clauses, in employment contracts, unenforceable against most workers. Further, it banned all new non-compete clauses. The rule would also have required employers to inform their workers of their rights under the rule. The FTC included an exception for “senior executives” who both earned more than $151,164 annually and served in policy-making positions who had signed non-compete clauses before the rule came into effect.

The FTC reports that about 20 percent of American employees work under non-compete clauses. Several states have adopted restrictions on non-compete clauses, with four states banning them entirely. The FTC’s rule, however, was the first nationwide measure of its kind.

Industry groups and employers challenged the rule, arguing that the FTC lacked statutory authority to institute it and that the rule required congressional authorization because of its economic and political significance. They also argued that, when drafting the rule, the FTC consulted only a limited number of studies, did not examine narrower alternatives to a total ban, and failed to properly evaluate the benefits of non-compete clauses, and therefore failed to meet the review standards required for administrative rulemaking.

The benefits of non-compete clauses have been the subject of rigorous scholarly debate. Some scholars contend that banning non-compete clauses would boost economic growth, entrepreneurship, and innovation. Others, however, assert that non-compete clauses are critical to protecting trade secrets.

Congress has since introduced potential legislative solutions. The Workforce Mobility Act would ban non-compete clauses except in cases involving the sale of a business or dissolution of a partnership. The Freedom to Compete Act would alternatively only ban non-compete clauses in employment contracts governed by the wage and overtime requirements of the Fair Labor Standards Act.

In this week’s Saturday Seminar, scholars examine the effects of non-compete clauses on worker mobility and whether antitrust law should regulate non-compete clauses and similar contract terms.

• In a George Washington Law Review article, Sandeep Vaheesan, legal director at the Open Markets Institute, argues that the FTC is returning to its traditional goal of protecting the independence of workers and small businesses by limiting corporate control. He argues that, since the 1970s, the Supreme Court has become increasingly permissive of imbalanced employment-market dynamics in which employers wield incredible power. Vaheesan cites gig-employment and the fast-food industry as examples of this phenomenon. He marks the FTC’s non-compete ban as return to the agency’s historical role of protecting workers’ independence. He urges the agency to go further in restricting exclusive dealing, no-poach agreements, and other contract-based restrictions.

• Under the FTC non-compete ban, overbroad confidentiality agreements (NDAs) would also be unenforceable, explains Rutgers Law School’s Camilla Hrdy and Washington and Lee University School of Law’s Christopher Seaman in a recent Yale Law Journal article. Hrdy and Seaman argue that the FTC ban used a functional test to determine what clauses were invalidated. They contend that this functional approach would prohibit NDAs that bar employees from working at competing companies, as the function equivalent of a non-compete clause. They note that NDAs generally face less scrutiny in court, making the FTC ban especially impactful. Though the FTC ban failed, the authors illustrate that courts across the country have found overbroad NDAs unenforceable as a public policy matter.

• In article in the Journal of Political Economy, Matthew Johnson of Duke University, Kurt Lavetti of Ohio State University, and Michael Lipsitz of the FTC, argue that a non-compete ban would likely promote wage-growth and job-mobility. Johnson, Lavetti, and Lipsitz present novel employment data they interpret to demonstrate that stricter non-compete enforceability decreases workers’ earnings and mobility, by reducing their options and preventing them from using job offers or tight labor markets to negotiate higher pay. They suggest that the FTC ban on non-competes could have raised wages, increased labor mobility, and reduced the market power employers gain when workers cannot credibly leave for competing jobs.

• In a recent article in the Journal of Economic Perspectives, Evan Starr of the University of Maryland argues that non-compete agreements hinder the economy by misallocating talent, constraining wages, and limiting innovation. He asserts that stricter enforcement of noncompetes makes it harder for employees to switch to a better job and negotiate higher wages. Starr also contends that use of non-compete agreements also harms consumers by forcing skilled service workers to leave their current geographic markets when they want to seek out new opportunities. He argues that, as a result of this mandate, consumers are unable to continue receiving services from their prior providers and must incur costs in finding and establishing relationships with new providers.

• In a Harvard Law Review Blog essay, Jonathan F. Harris of the Temple University Beasley School of Law asserts that the FTC possesses sufficient legal authority to implement a ban on non-compete agreements and their functional equivalents. He points out that the FTC Act provides broad authority over “unfair methods of competition.” He explains that this authority extends beyond the regulation of traditional monopolistic practices, as courts have upheld past uses of the FTC’s rulemaking authority, to address misleading job training program advertisements and falsified employment figures from educational institutions. Harris concludes that the FTC’s extensive history regulating labor practices proves that the Commission possesses the requisite authority to ban noncompete agreements and similar anticompetitive employment practices.

• In a Chapman Law Review article, Stephen Hendricks of Western State College of Law argues that the FTC’s noncompete ban is overly broad and ignores legitimate business interests. Employers depend on noncompetes to protect their “intellectual property, customer relationships, and investments in employee training,” which helps foster innovation, Hendricks argues. At the same time, he acknowledges that noncompetes can be harmful for low-wage workers, in particular. Instead of an all-or-nothing approach with respect to noncompetes, Hendricks promotes the adoption of the German model of noncompetes, in which employers are obligated to compensate employees during the period in which they are restricted from working for a competitor. He also asserts that Congress should create national standards for noncompetes, including restrictions on enforceability, duration, and geographic scope.