*This writing is a Blog post. It is not a published IPTF Journal article.
Ariana Harris
Non-compete clauses have long faced skepticism.[1] Though intended to protect a company’s proprietary information (e.g., trade secrets, business plans) by limiting employee mobility and thus avoiding unfair competition, their legitimacy is sometimes questioned with respect to unfair employment practices.[2]
Advocates for a nationwide ban argue reduced non-compete enforcement raises wages and boosts innovation.[3] These individuals cite increased innovation in California resulting from the state’s ban on non-compete clauses and prevention of monopolies.[4] Opponents of a nationwide ban argue employers might invest less in employee training and development.[5] They insist a ban would reduce protections for confidential information, potentially deterring some businesses from entering the market.[6]
In 2023, the Federal Trade Commission (FTC) proposed a Non-Compete Clause Rule to ban non-compete clauses for common workers after encouragement from President Biden.[7] Yet, Judge Brown of the United States District Court for the Northern District of Texas declared the rule unconstitutional in Ryan, LLC v. FTC in August 2024, finding that the FTC lacked the authority to create substantive rules imposing broad industry-wide restrictions.[8] In March 2025, the FTC sought to delay the appeal of Judge Brown’s decision due to changes in the presidency and FTC leadership.[9]
Considering arguments for and against a non-compete ban, worker protection should be strengthened despite employer’s fears over proprietary information.[10] The FTC, however, may not be the most appropriate agency to enact sweeping labor market regulations.[11]
Instead, courts should consider a balanced approach to protect both company secrets and employee mobility.[12] The judiciary should enforce narrowly tailored non-compete clauses but also strengthen penalties for trade secret misappropriation.[13] Additionally, state legislatures must create non-compete regulations that address local economic needs, such as setting wage thresholds to protect low-wage workers.[14] Nationally, employers should be required to explicitly disclose non-compete terms within employment agreements, as many workers are currently unaware of these restrictions.[15]
Those advocating for a complete ban on non-compete clauses may resist compromises.[16] Nevertheless, some non-compete clauses serve legitimate purposes.[17] A solution must balance employee needs while protecting the employer’s interest in protecting proprietary information.[18]
[1] Eyasu Yirdaw, Preventing the Noncompete Apocalypse: Why the FTC Has It Wrong, 5 Corp. & Bus. L.J. 124, 125 (2024).
[2] See id. at 125, 132–33 (detailing how limiting employee mobility and disclosure incentivizes entrepreneurship and innovation while preventing unfair competition).
[3] Michael Lipsitz & Evan Starr, Low-Wage Workers and the Enforceability of Noncompete Agreements, 68 Mgmt. Sci. 143 (2022); Eric A. Posner, The Antitrust Challenge to Covenants Not to Compete in Employment Contracts, 83 Antitrust L. J. 165 (2020) (showing reduced enforcement of non-competes has led hourly employees receiving higher wages).
[4] Christopher Mack, Postemployment Noncompete Agreements: Why Utah Should Depart from the Majority, 2015 Utah L. Rev. 1201, 1211 (2015).
[5] Norman D. Bishara, Covenants Not to Compete in a Knowledge Economy: Balancing Innovation from Employee Mobility Against Legal Protection for Human Capital Investment, 27 Berkeley J. Emp. & Lab. L. 287, 301–03 (2006).
[6] Yirdaw, supra note 1, at 153.
[7] See FACT SHEET: FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition, Fed. Trade Comm’n (Jan. 5, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition (stating that a worker who is a part owner is not considered a worker per the proposed rule); Promoting Competition in the American Economy, Exec. Order No. 14,306, 86 Fed. Reg. 36987, 36992 (July 9, 2021) (encouraging the FTC to limit non-compete clauses “for the common worker”); Noncompetes: What You Should Know, Fed. Trade Comm’n, https://www.ftc.gov/news-events/features/noncompetes (last visited Nov. 12, 2024).
[8] Ryan, LLC v. Fed. Trade Comm’n, No. 3:24-CV-00986-E, 2024 WL 3879954, at *1 (N.D. Tex. Aug. 20, 2024).
[9] J. Mark Gidley, Kathryn Jordan Mims, Michael J. Songer, Jaclyn Phillips, Tal Marnin, Lauren Gorab, Katya El Tayeb, Markus Mette, Stefan Papastefanou, Belinda Harvey, Stefanie Benson, Clara Hainsdorf, Peter Citron, Nicholas Greenacre, & Dr. Michael Engel, White & Case Global Non-Compete Resource Center, White & Case LLP (Apr. 8, 2025), https://www.whitecase.com/insight-tool/white-case-global-non-compete-resource-center-ncrc (quoting FTC Chair Andrew Ferguson: “My view is that the Commission . . . basically needs to decide whether it’s a good idea and it’s in the public interest to continue defending this rule.”). See also Cecilia King & David McCabe, Trump Picks Andrew Ferguson to Lead Federal Trade Commission, N.Y. Times (Dec. 10, 2024), https://www.nytimes.com/2024/12/10/technology/trump-ftc-andrew-ferguson.html (discussing how then-President-elect Trump promoted existing Republican Commissioner Ferguson to FTC Chair). As Chair, Ferguson has indicated his plans to roll back much of his Democratic predecessor’s regulatory agenda. Id.; Andrew N. Ferguson Takes Over as FTC Chairman, Fed. Trade Comm’n, (Jan. 22, 2025), https://www.ftc.gov/news-events/news/press-releases/2025/01/andrew-n-ferguson-takes-over-ftc-chairman; Dana Mattioli & Dave Michaels, Trump Fires Two Democratic FTC Commissioners, Wall St. J. (Mar. 18, 2025), https://www.wsj.com/politics/policy/trump-fires-two-democratic-ftc-commissioners-sources-say-8ff4314c (analyzing President Trump’s decision to break with Supreme Court precedent of Humphrey’s Executor by firing the two remaining Democratic commissioners to create a Republican majority in the reconstituted FTC).
[10] See Yirdaw, supra note 1, at 152–53 (holding employees, particularly low-wage workers, would likely benefit from less restrictive non-compete clauses); see also R. Mark Halligan, Trade Secrets and the Death of Non-Competes, Reuters (Aug. 13, 2024), https://www.reuters.com/legal/legalindustry/trade-secrets-death-non-competes-2024-08-13/ (identifying how FTC’s proposed ban garnered 26,000 public comments in its support). Authors of these comments highlighted how non-compete clauses had negatively affected wages, work conditions, quality of life, quality of product or service and business growth opportunities. Id.
[11] Halligan, supra note 10; see Ryan, LLC, 2024 WL 3879954, at *11 (determining FTC Act’s history provides evidence that FTC lacked authority to promulgate substantive rules). FTC focuses primarily on competition and consumer protection, not employment policy. Id.
[12] See Yirdaw, supra note 1, at 131 (finding non-competes restrict employee mobility to prevent proprietary information from reaching competitors).
[13] See Bishara, supra note 5, at 321–22. (promoting a hybrid model for non-compete clauses for employees in knowledge-based service industries).
[14] Yirdaw, supra note 1, at 155; Russell Beck, Restrictive Covenant Charts, Beck Reed Riden LLP, https://faircompetitionlaw.com/restrictive-covenant-charts/ (last visited Nov. 12, 2024).
[15] Yirdaw, supra note 1, at 153.
[16] Id. at 156.
[17] Id.
[18] Id.