The Federal Trade Commission has a new chairman — Andrew Ferguson. Prior to becoming chairman, Ferguson was sworn in as an FTC commissioner in April 2024 under then-President Joe Biden. Ferguson’s designation as chairman may seem like a benign political appointment, but it could have major implications for businesses and individuals alike, particularly for those affected by noncompete agreements. As chairman, Ferguson will be tasked with leading the enforcement of consumer protection and competition laws. Noncompete agreements have been at the center of those enforcement efforts in the last year (albeit, under a different administration).

Reminder About the FTC’s Attempt to Ban Noncompetes

As we reported last year, the FTC — at that time under different leadership — banned most noncompetes (the Noncompete Rule). It’s been estimated that the Noncompete Rule would have nullified more than 30 million existing contracts. Then in April 2024, the United States District Court for the Northern District of Texas set aside the Noncompete Rule, prohibiting it from taking effect on September 4, 2024. The Northern District of Texas ruled that the FTC lacked statutory authority to promulgate the Noncompete Rule. The FTC then appealed that decision to the Fifth Circuit Court of Appeals. That case remains pending. 

Two other lawsuits were also filed around the same time. One is now pending before the Eleventh Circuit after a federal district court in Florida issued a more limited opinion holding that the Noncompete Rule was unlawful. The other was a Pennsylvania district court decision finding the Noncompete Rule was enforceable, but the business challenging the rule has since dismissed the case. 

What Does the New Chairman Think about the Noncompete Rule?

Ferguson was clear that he thought the Noncompete Rule was beyond the limit of the FTC’s power. In his dissent, he stated:

I do not believe we have the power to nullify tens of millions of existing contracts; to preempt the laws of forty-six States; to declare categorically unlawful a species of contract that was lawful when the Federal Trade Commission Act (FTC Act) was adopted in 1914; and to declare those contracts unlawful across the whole country irrespective of their terms, conditions, historical contexts, and competitive effects. Accordingly, I respectfully dissent.

In other words, he believed that the FTC lacked rulemaking authority under Section 6(g) to enact the rule.

Now What? Are Noncompetes Safe?

So, what is likely to happen given the changing of the guard at the FTC? We certainly do not have a crystal ball, but it’s widely suspected that the FTC will not pursue its appeals of the Noncompete Rule. And many think there is a significant chance that once a necessary majority is in place at the FTC, the FTC may rescind the Noncompete Rule. Indeed, more generally, many suspect that Ferguson will advance a more limited interpretation of the FTC’s rulemaking authority and enforcement power. Interestingly, if Ferguson dismisses the FTC’s appeals in the Fifth and Eleventh circuits, the district court decisions finding the rule to be unlawful would remain good law (although contradicted by the district court in Pennsylvania).

To be certain, while many think it’s unlikely that Ferguson will be advancing aggressive rulemaking initiatives, he made clear in his dissent that he was “sympathetic to the policy embodied in the” Noncompete Rule, recognizing that noncompetes “cut against the grain of our ancient common-law tradition protective over man’s right to ply his trade and may in some circumstances undermine competition and innovation.” He recognized that in his opinion there were “sound arguments in favor of legislation regulating noncompete agreements.” But that doesn’t change his stance that the FTC simply did not have the power to impose such a rule. 

Even if noncompetes are safe — for now — at the federal level, we’re keeping an eye on what is happening state-by-state. In recent years, we’ve seen some states gravitate towards precedent that is less restrictive of noncompete agreements. Other states, like Virginia, have enacted laws making it much more difficult to enforce restrictive covenants, at least in particular circumstances. Stay tuned and, as always, if you need assistance in evaluating the enforceability of a restrictive covenant in this ever-changing landscape, we’re here to help.