What happened to the FTC’s noncompete ban?

January 15, 2025
The federal rule would have prevented noncompete arrangements, common in physician employment agreements. But rule enforcement is on hold while courts review.
Gavel on table

Courts blocked implementation of a federal noncompete ban, originally slated to take effect in 2024, but its fate is anything but certain. So, what’s next for the fraught rule? 

Although approved via 3-2 vote in April 2023, the Federal Trade Commission’s (FTC’s) final rule banning all noncompete agreements faced multiple legal challenges even before its effective date on Sept. 4, 2024, leaving many employers and employees unclear on next steps. The final rule, presently enjoined by courts, would have prohibited employers from issuing noncompete agreements with workers, or provisions that functionally act as noncompete agreements, as well as require employers to stop enforcing most existing arrangements. 

FTC noncompete final rule legal challenge timeline 

“Noncompete clauses are common in physician employment agreements, so AOA members will need to pay attention to the requirements of the new rule, if it ultimately survives the current legal challenges. It is unfortunate that this current state of limbo makes planning difficult.  Unless and until the rule takes effect, current rules regarding noncompete clauses still govern” says Michael Stokes, J.D., AOA general counsel. 

Under the FTC’s final rule, it would be illegal for employers to: 

  • Enter into or attempt to enter into a noncompete with an employee.
  • Maintain an existing noncompete with an employee.
  • Represent to an employee, under certain circumstances, that the employee is subject to a noncompete clause. 

The rule does not apply to other types of employment restrictions, such as nondisclosure agreements. Yet, it may be applied to other types of employment restrictions if they are overly broad in scope. 

In justifying the rule, the FTC claimed noncompete arrangements tend to negatively affect competitive conditions in product and service markets, inhibiting new business formation and innovation, as well as leading to increased market concentration and higher consumer prices. 

However, courts haven’t agreed on the FTC’s assessment or its authority to make such a sweeping prohibition. Such is the case in a string of legal challenges before federal courts in several states. 

Legal challenges to noncompete ban: A timeline 

  • April 23, 2024 – FTC adopts final rule banning noncompete agreements
  • July 3, 2024 – The U.S. District Court for the Northern District of Texas holds that the FTC rule likely exceeded its rulemaking authority and granted preliminary injunction in part to only the plaintiffs.
  • July 23, 2024 – In contrast, the U.S. District Court for the Eastern District of Pennsylvania denied a plaintiff’s request for preliminary injunction noting that the FTC acted within its congressional authority.
  • Aug. 14, 2024 – The U.S. District Court for the Middle District of Florida concluded the FTC rule likely needed to point to clear congressional authorization and granted preliminary injunction for the plaintiff, yet stopped short of entering a nationwide injunction.
  • Aug. 20, 2024 – The U.S. District Court for the Northern District of Texas granted the plaintiff’s motion for summary judgement, holding the final rule as unlawful and preventing it from taking effect on Sept. 4, 2024.
  • Oct. 4, 2024 – Plaintiffs in the Pennsylvania case filed notice of voluntary dismissal and dropped its legal challenge.
  • Oct. 18, 2024 – The FTC filed its intention to appeal the Texas court’s ruling to the U.S. Circuit Court of Appeals for the 5th Circuit.  

As of Jan. 15, 2025, neither appellate court has issued a ruling, hence many employers state of uncertainty with noncompete arrangements. 

Jim Zieba, consultant and former Indiana Optometric Association executive director, notes that it’s unlikely the FTC's final rule survives either appellate court. However, should those courts rule against the FTC, the commission may appeal to the U.S. Supreme Court. 

“Currently, noncompete agreements are governed by state laws,” Zieba notes. “The agreements are banned in four states and restricted in 33 states and the District of Columbia.” 

What can doctors do now as courts decide the noncompete ban’s fate? 

Immediately following the FTC’s proposed ruling, the AOA provided a frequently asked questions document for doctors to consult regarding any impact of a noncompete ban. It is noted that the U.S. Chamber of Commerce and other business groups have vowed to fight the rule, and while there is some bipartisan support for the rule, legal challenges currently keep the noncompete ban enjoined. 

The AOA will provide further information to members should legal decisions or challenges require members to take action. 

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