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FTC drops its ban on non-compete agreements

News Compliance Courier

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NEWS:  The Federal Trade Commission (FTC) has taken steps to end implementation of a rule that would have banned employment non-compete agreements nationwide.

In early 2024, The League alerted you that the FTC had issued a rule to largely prohibit new non-compete agreements in employment and render most existing non-competes unenforceable. Last fall, a federal trial court in Texas put the rule on hold, and that decision was appealed.

Now, the FTC has agreed to vacate its rule and dismiss all pending appeals. However, it has signaled that it will continue to focus on unlawful post-employment non-compete agreements through case-by-case enforcement of provisions in the FTC Act. In addition, states continue to propose and enact non-compete bans of varying degrees.

For details, please see this analysis published by the Husch Blackwell law firm, The League’s outside counsel. It emphasizes the following key points:

  • FTC’s enforcement actions: The FTC will continue its enforcement efforts aggressively against the unfair use of post-employment non-competes on a case-by-case basis under Section 5 of the FTC Act. 
  • FTC’s public inquiry program: The FTC has launched a public inquiry program “to better understand the scope, prevalence, and effects of employer noncompete agreements, as well as to gather information to inform possible future enforcement actions.” 
  • State law controls: The regulatory landscape returns to the pre-rule status quo, with state law governing the enforceability of non-competes. Dozens of states continue to enact and enforce stringent statutes prohibiting non-competes.
Wisconsin is not among the states that have banned non-competes, but they are generally disfavored under Wisconsin law. Section 103.465 of the Wisconsin Statutes prohibits the enforcement of unreasonable restrictive covenant agreements between employers and employees or principals and agents. The statute applies to non-compete agreements (“business clauses”), customer clauses, non-disclosure agreements, and employee anti-poaching agreements, all of which are “lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal.”
 
The Wisconsin Court of Appeals has said that a non-compete agreement must meet five requirements to be enforceable in this state:

  1. It must be necessary to protect the employer; 
  2. It must provide a reasonable time limit; 
  3. It must provide a reasonable territorial limit; 
  4. It must not be harsh or oppressive to the employee; and 
  5. It must not be contrary to public policy.

If a non-compete agreement violates any of these requirements, the entire agreement can be found void and unenforceable.

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