By: Rebekah Watts
Originally published in Utah Physician Magazine’s April/May 2025 Issue
In recent years, non-compete clauses have become a focal point of legal and economic debate in the United States. These clauses, which restrict employees from joining competing firms or starting similar businesses within a certain period after leaving a company, have been scrutinized for their impact on labor mobility and innovation. Initially conceived to protect trade secrets and sensitive business strategies, these clauses have proliferated across industries and job roles, prompting intense legal and public debate over their fairness, necessity, and broader economic implications.
Historically, non-compete agreements were used for executive level employees or specialists who held critical proprietary knowledge or who had control over critical customer relationships. However, over the last two decades, their application has expanded to include entry-level and mid-level employees across diverse sectors whose post-employment competition may not pose a material unfair threat to their prior employers. This broad usage has triggered concern among economists, labor advocates, and policymakers who argue these clauses hinder worker mobility, suppress wages, and dampen innovation.
Federal Trade Commission’s Initiative to Ban Non-Competes On April 23, 2023, the Federal Trade Commission (“FTC”) issued a groundbreaking rule (the “Proposed Rule”) effectively seeking to ban non-compete clauses nationwide, classifying them as an unfair method of competition. The FTC’s Proposed Rule would have had the effect of banning nearly all non-competes nationwide, restricting employers from entering into or attempting to enter into non-compete agreements with workers who did not qualify as senior executives earning over $151,164 annually. The rule would also have required employers to advise employees previously bound by non-compete agreements that their non-compete restrictions were no longer valid.
The Proposed Rule represents a significant policy shift and has sparked considerable debate. The Proposed Rule was part of a broader effort to promote fair competition and enhance economic opportunities for workers across various industries. Proponents argue that eliminating non-competes would lead to increased job mobility, higher wages, and greater innovation. They contend that non-competes often serve as a tool for employers to maintain control over their workforce, rather than protect legitimate business interests. On the other hand, opponents of the ban argue that non-competes are essential for protecting trade secrets and maintaining competitive advantage, particularly in industries where intellectual property is a critical asset. Opponents also argued that non-competes are not an appropriate subject for federal executive action, because they are a creature of contract law traditionally governed by the states.
Legal Challenges to the FTC’s Ban on Non-Competes Lawsuits challenging the legality of the Proposed Rule were filed shortly after the Rule was issued. On August 20, 2024, Judge Ada
Brown, a federal judge in the US District Court for the Northern District of Texas, blocked the FTC’s Proposed Rule. The ruling from Judge Brown has nationwide effect, blocking the FTC’s ban on non compete agreements across all states.
Judge Brown ruled that the FTC lacked authority to issue the ban. The decision removes uncertainty, at least for now, regarding the enforceability of non-compete agreements. At the moment, properly drafted non-compete agreements that comply with state law may be enforceable under appropriate factual circumstances. Having said that, the FTC appealed Judge Brown’s decision to the Fifth Circuit on October 18, 2024. Both parties have submitted briefing; however, in an interesting turn of events, the FTC filed a motion to stay its Fifth Circuit appeal (and a second more limited appeal in the Eleventh Circuit) on March 7, 2024. This move could suggest a shift in the FTC’s willingness to defend the Proposed Rule and possibly a shift in its approach to non-competes more generally. The Fifth and Eleventh Circuit’s granted the motions and ordered the FTC to file status reports regarding future steps in the cases by July 10, 2025, and July 18, 2025, respectively.
Looking Forward
For the time being, employers may rely on existing non-compete agreements and continue to require select employees to enter into non-competes as a condition of employment or continued employment, to the extent permitted under state law. Still, employers would be wise to audit their non-compete portfolios to be sure their agreements comply with state laws, which generally require non-compete agreements be narrowly drafted to protect an employer’s true competitive interests and be reasonable in scope, duration, and geographic reach. It’s also a good time for employers to review their confidentiality, non-disclosure and non-solicitation agreements and intellectual property and trade secret-protection programs to broaden protections against unfair competition, separate and apart from non-compete agreements. Such alternative mechanisms can provide sufficient safeguards without unduly restricting an employee’s mobility.
The future of non-compete clauses in the United States remains uncertain, with significant developments on the horizon. As the legal landscape continues to evolve, employers must remain vigilant and adaptable to ensure that their interests are protected in this dynamic environment.
Rebekah Watts
moc.nqr@sttawr
801-323-3672
Rebekah Watts is an associate in the firm’s Employment and Litigation Sections.
She earned her J.D. with High Honors and Order of the Coif from the University of Utah, S.J. Quinney College of Law, where she served as an editor for the Utah Law Review, a research assistant, Quinney Research Fellow, and teaching assistant. She also externed with the Utah Federal Defenders. Before joining the firm, Rebekah clerked for U.S. Magistrate Judge Daphne A. Oberg in the District of Utah.