If the FTC's ban on noncompete agreements survives legal challenges, it might still face problems should there be an administration change following the 2024 presidential election.
The 2024 U.S. presidential election will be decisive for the Federal Trade Commission's ban on noncompete agreements, especially if legal challenges fail to block the rule's implementation.
The president appoints FTC commissioners. Depending on whether Republican presidential candidate Donald Trump or President Joe Biden, a Democrat, win the election, the five-member commission could flip position. The existing FTC is comprised of three Democrats and two Republicans. The latter voted against the final rule banning noncompete agreements passed by the FTC this week in a 3-2 vote. The rule is supposed to take effect 120 days after being published in the Federal Register.
At the beginning of the term, the Biden administration indicated the desire to regulate use of noncompete agreements in the labor market, tasking the FTC with taking action either through banning or limiting use of those agreements. However, the FTC's action to ban noncompetes met opposition from Republican FTC commissioners who argued that such rulemaking should be Congress' responsibility. Meanwhile, the FTC is also facing lawsuits from tax services provider Ryan LLC and the U.S. Chamber of Commerce, which similarly question the FTC's rulemaking authority.
"Let me be clear: My dissent today should not be interpreted to mean that I endorse all noncompete agreements," FTC Commissioner Melissa Holyoak said during an FTC webcast of the vote. "To the contrary, I support the commission's prosecution of anticompetitive noncompete agreements where the facts and law support such enforcement. However, no matter how important, conspicuous and controversial the issue, an administrative agency's power to regulate in the public interest must always be grounded in a valid grant of authority from Congress."
Robert Milligan, a business attorney at Seyfarth Shaw, said noncompete bans themselves aren't necessarily a Democrat vs. Republican issue. The Republican FTC commissioners' opposition wasn't based on the merits of the noncompetes ban itself but on the FTC's authority to pass such rules.
If the FTC's noncompetes ban isn't delayed or struck down by the courts, the presidential election could be a deciding factor in whether a noncompete ban comes from the FTC or through legislation proposed by Congress, Milligan said.
Election could affect FTC rule
Milligan said it's not surprising that the FTC's move to ban noncompete agreements coincides with the upcoming presidential election.
Whether the FTC's rule sticks or not, the Biden administration can point to their efforts to eliminate noncompete agreements, which will resonate with constituents in the election, Milligan said.
No matter how important, conspicuous and controversial the issue, an administrative agency's power to regulate in the public interest must always be grounded in a valid grant of authority from Congress.
Melissa HolyoakFTC Commissioner
"Certainly, President Biden can say he's fulfilled his campaign promise -- that he tried to rid the world of these awful agreements -- and it's the Republicans that are getting in the way of progress," he said.
While Biden specifically tasked the FTC with taking on noncompete bans, it's unclear how the FTC noncompete ban would stand up should Trump win the 2024 election.
In 2016, under the former Trump administration, the U.S. Dept. of Justice and FTC continued an Obama administration policy making no-poach agreements a violation of antitrust law. No-poach agreements are another form of what are called restrictive covenants, or agreements between employers and employees limiting employee activity, such as noncompete agreements. In a no-poach agreement, businesses agree not to hire the other's employees.
However, according to reporting from Politico, the Trump administration itself in 2016 featured a strong noncompete clause that prohibited its campaign employees from working with another presidential candidate in the campaign cycle, specifically Hillary Clinton. That leaves the question of how Republicans under Trump's leadership might view noncompete agreements should he win the 2024 election.
If the FTC under a new Trump administration reversed position on its ban of noncompete agreements, that could be more challenging for businesses, said Joe Lavigne, a lead attorney and partner in the labor and employment practice group at Jones Walker.
"In my discussions with owners, managers, senior management, on all levels, they much prefer to know what the rules are so they can follow the rules," he said. "They would prefer the rules not change every four years. That makes it more difficult to comply with what the rules are because they're constantly changing."
Makenzie Holland is a senior news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general assignment reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
