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Noncompetes have long shaped the employer-employee relationship in the United States. These contractual clauses prohibit workers from joining competitors or starting competing businesses for a specified period of time and in a certain geographic area after leaving their job. Noncompetes were originally intended to protect trade secrets and safeguard employer interests in training; however, their use has expanded far beyond executive and technical positions. A 2023 Government Accountability Office report estimated that 18 percent of US workers are currently bound by noncompetes, and nearly 38 percent were subjected to one at some point during their employment.
On January 5, 2023, the FTC proposed a Rule that would prohibit nearly all noncompetes nationwide. After over 26,000 public comments and over a year of deliberation, the Final Rule was published on May 7, 2024. The Rule banned new noncompetes for almost all workers, allowing exceptions only for a narrow group of senior executives earning more than a defined compensation threshold.
FTC Chair Lina Khan justified the move as a means to “restore a core economic liberty” and estimated it would boost workers’ earnings by $250-$300 billion annually. Yet, from the moment the Rule was announced, the Rule faced strong opposition from business groups and conservative policymakers, who argued that the FTC had exceeded its statutory authority under the Federal Trade Commission Act of 1914.
After the rule’s publication, multiple lawsuits challenged its legality. The most significant case, Ryan LLC v. FTC, was filed in the U.S. District Court for the Northern District of Texas. On August 20, 2024, the Court vacated the rule nationwide, finding the FTC lacked the authority to issue substantive competition regulations.
The Court reasoned that Section 6(g) of the FTC Act allows the agency to issue procedural, not substantive, rules. Additionally, Section 5, which prohibits “unfair methods of competition,” grants the FTC enforcement power through individual case adjudication, not broad legislative rulemaking. The court also invoked the Major Questions Doctrine, citing West Virginia v. EPA to conclude that banning millions of existing employment contracts constituted a policy decision of vast economic and political significance that Congress had never clearly authorized. The rule was also struck down as arbitrary and capricious under the Administrative Procedure Act because the FTC failed to justify why a categorical ban was necessary instead of a more tailored approach. The court found that the agency had not adequately considered alternatives or provided evidence that all noncompetes were harmful to competition.
The FTC appealed the decision, but following the transition from the Biden to Trump administrations, the newly appointed commission voted to drop the appeals in both Ryan LLC and a related case, Properties of the Villages v. FTC. This marked the effective end of the federal noncompete ban.
While the FTC exceeded its statutory authority with its attempt to ban noncompetes, the agency’s work should not go to waste. Congress must find a way to ban or heavily restrict noncompetes. Noncompetes hurt workers and the nationwide economy by depressing wages, reducing entrepreneurship, and impeding efforts to correct inequities in the labor market. In fact, research has shown that 11 percent of those who sign one are forced to find work in a different industry after they leave their job, harming both companies and individual workers.
The groundwork for a federal ban had already been laid. On June 11, 2025, Senators Chris Murphy (D-CT), Kevin Cramer (R-ND), Todd Young (R-IN), and Tim Kaine (D-VA) introduced the Workforce Mobility Act of 2025 to limit the use of noncompetes. The legislation would impose an almost complete ban on the clauses, except when dissolving a partnership or selling a business. It also requires employers to make employees aware of noncompete limitations.
While companies attempt to justify noncompetes by arguing they are only used in cases with employees who are in possession of proprietary information and trade secrets, that is oftentimes not the case. A New York Times video found that individuals such as hairstylists, florists, and dental technicians are subjected to noncompetes. These individuals did not possess any trade secrets or proprietary information; rather, their employers attempted to prevent them from leaving to ensure they did not have to find new employees.
The question of the necessity of noncompetes becomes more apparent when one considers the existence of trade secret laws. All 50 states and the Federal Government have strong laws to ensure that civil and criminal penalties exist for those who misappropriate trade secrets from their former employers. These laws ensure that employees who steal novel ideas or information can face up to 10 years in prison, fines, or both.
While a federal ban will most likely not happen during this Presidential Administration, states have varying degrees of rules on noncompetes. California, Minnesota, North Dakota, and Oklahoma have completely banned them, while many other states have various restrictions. However, due to there being no uniform standard across state lines, enforceability questions will continue to arise, especially considering the prevalence of remote work.
The FTC made a bold attempt to benefit workers and the U.S. economy, but they were rightfully prevented from exceeding its legal authority. However, that does not mean that noncompetes should not be banned. They pose a unique threat to workers by limiting wages and stifling innovation. While states have attempted to alleviate the issue, a federal ban passed by the House and Senate is the only way to truly level the playing field for employers and employees.
Suggested Citation: Akshey Mulpuri, Banning Noncompetes the Right Way: Courts, Congress, and the FTC’s Failure, Cornell J.L. & Pub. Pol’y, The Issue Spotter, (Nov. 13, 2025), https://publications.lawschool.cornell.edu/jlpp/2025/11/13/banning-noncompetes-the-right-way-courts-congress-and-the-ftcs-failure/.
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