FTC Non-Compete Ban Sparks Legal Challenge

‘Regardless of what happens with the rule … everybody’s talking about it.’

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Happy Thursday! British politicians are on a sneaker-killing spree. First, it was Prime Minister Rishi Sunak and his Adidas Sambas. Now, Nigel Farage—the head of the Brexit Party—has apparently doomed the Adidas Gazelles. We don’t know which model is next to be condemned to perpetual uncoolness, but Liz Truss had best stay away from our Stan Smiths. 

Quick Hits: Today’s Top Stories

  • Mark Meadows, former chief of staff to then-President Donald Trump, and former Trump lawyer Rudy Guiliani were among the 18 people indicted by an Arizona grand jury on Wednesday on felony charges relating to election interference. The indictment alleges that seven attorneys or aides involved with the 2020 Trump presidential campaign—including Meadows and Giuliani—attempted to award the state’s electoral votes to Trump, despite the fact that Trump lost the state by more than 10,000 votes. The 11 others indicted were Arizona GOP officials who falsely declared to Congress that Trump was the rightful winner of the state.
  • Israel is planning to advance a military operation aimed at taking the southern Gaza city of Rafah, a final Hamas stronghold in the enclave, Egyptian and former Israeli officials said on Wednesday. President Joe Biden warned Israel last month that invading Rafah—where hundreds of thousands of Palestinian civilians have fled—would cross a “red line.” Israel reportedly intends for the military operation to roll out in phased, targeted attacks, rather than a full-scale offensive, after evacuating civilians from the area. Meanwhile, the Israel Defense Forces (IDF) confirmed on Wednesday that it struck various Hezbollah strongholds in southern Lebanon, targeting at least 40 sites.
  • Hamas is still holding nearly 130 hostages in the Gaza Strip—several of whom are dual Israeli-American citizens—but it’s unclear how many of those hostages are still alive. Hamas released a highly edited propaganda video on Wednesday featuring 23-year-old American-Israeli hostage Hersh Goldberg-Polin reading a statement pressing Israeli Prime Minister Benjamin Netanyahu to cut a deal with the terrorist group to free the remaining hostages. Hamas brutally kidnapped Goldberg-Polin from the Nova music festival on October 7 and blew off much of his left arm in a grenade explosion. It was unclear exactly when the video was filmed, though Goldberg-Polin said he had been held for nearly 200 days. 
  • Germany’s foreign ministry announced on Wednesday that the country would continue to financially support the United Nations Relief and Works Agency (UNRWA), the primary U.N. agency working in Gaza. Several countries, including the U.S. and Germany—the top two contributors—paused their funding of the agency in January following Israel’s claim that at least 12 of its workers participated in Hamas’ October 7 attacks. Germany’s government said it would reinstate the funding after a review commissioned by the U.N. released on Monday found that “Israel has yet to provide supporting evidence of this.” In a press statement, German officials emphasized what they called the “vital and currently irreplaceable role played by UNRWA in meeting the basic needs of the people in Gaza.”
  • Toomaj Salehi, an Iranian rapper and vocal critic of the Iranian regime in both his music and on social media, was handed a death sentence on Wednesday on charges including “corruption on Earth.” Salehi was first arrested in October 2022 for speaking in support of anti-government protests in the country. In April 2023, a U.S. State Department spokesman said the rapper’s arrest “underscores just how much Iran’s leadership fears its own people, particularly young people like Toomaj.” Salehi has 20 days to appeal the sentence, which his lawyer said he plans to do.
  • President Biden on Wednesday signed into law a $95 billion foreign aid and national security package which includes support for Ukraine, Israel, and the Indo-Pacific. The Senate on Tuesday overwhelmingly passed the legislative package—which also contains a measure that could lead to the potential ban of TikTok—that the House drew up and passed last week. “When our allies are stronger, we are stronger,” Biden said shortly after signing the bill.
  • The Supreme Court heard oral arguments on Wednesday in a case examining whether an Idaho law restricting abortion access violates a federal law that requires hospitals receiving Medicare funding to provide emergency care. The Biden administration sued Idaho in 2022, arguing the federal law—known as EMTALA—protects abortions that doctors deem medically necessary. Conversely, the Idaho law only allows exceptions to save the mother’s life and in cases of rape or incest. The justices seemed divided over the issue on Wednesday, and the court’s decision could have implications beyond Idaho, including in six other states that have implemented similar abortion bans.
  • After initially setting a deadline of midnight on Tuesday for protesters to dismantle their camp or face “disciplinary action” from the university or law enforcement, Columbia University administrators on Wednesday extended the deadline for the groups to do so. A Columbia spokesperson told the Columbia Spectator early Wednesday morning that university administrators were continuing negotiations with the student activists for the next 48 hours. Meanwhile, police arrested more than 50 people at a pro-Palestinian demonstration at the University of Texas at Austin (UT) on Wednesday after they proceeded with plans to occupy a part of the campus lawn without authorization from the UT administration. 
  • Jim Hoft, the founder of the conspiracy theory-laden website, Gateway Pundit, announced on Wednesday that the site’s parent company had declared bankruptcy. Hoft said that the move was made to help “consolidate litigation” against the company, which was sued by two Georgia election workers in December 2021 for publishing “false and endlessly repeated accusations that [they] committed election fraud.” 

Time To Check Your Contract 

(via Getty Images)
(via Getty Images)

In light of the Federal Trade Commission’s (FTC) decision Tuesday to retroactively ban non-compete agreements, your Morning Dispatch editors have an announcement to make.

Just kidding. We’ve learned from painful experience not to joke about major changes to this newsletter.

The FTC passed a rule on Tuesday eliminating non-competes—contract clauses that block employees from working for a company’s competitors for a certain period of time after leaving a job—for all American workers, initiating a sweeping change affecting millions of employees. But the rule already faces a legal challenge from the business groups that favor non-competes and believe the FTC has overstepped its authority.

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Comments (347)
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  1. Debra D

    EMTALA is not simply an emergency care law. It is a law that does not allow hospitals to refuse care for inability to pay. You can’t transfer a patient if your hospital provides the kind of care the patient needs. There are very few “emergency” abortions. Abortion are elective. There are emergency services for mothers who are at risk of losing their babies that may result in the loss of the child. That is not an abortion.

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    Jordan Ingram

    This is certainly a most interesting thing with the FTC. For one I am on the fence towards either side because it's not only pros and cons. It has it's trade-offs. That being said I would liked to see if the FTC did some investigation and maybe inform states of their results. Get experimentation going on the state level before a flat blanket ban is more prudent, and less likely to rear the head of unexpected consequences to a wider area.

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    Show Jay Janney the 🚪!

    Merton Miller in 1977 gave a talk called "Debt and Taxes" (who knew economists could pun!). In it he argued that one sided agreements rarely last. He encouraged economists to ask then, why such agreements persist? His response is that they are either harmless or else convey value that has been overlooked. He argued economists should seek to identify those overlooked benefits.

    In 2020 I published a theory piece in a small journal which did that (why venture capital grandstanding benefits everyone). Thanks Merton!

    How might an NCA benefit an employee? I think anytime a business is willing to make an investment in an employee, it benefits them in the long run. An NCA allows the business to recoup (and even enjoy a return) on that investment. As I noted below, my eldest is an engineer. A company hired him out of college into a specialty where he was unqualified (safety engineering, and a specialist within that). His NCA basically forbid him from going to work with the clients he served in that role, for 3 years. He received excellent training, which made him more marketable to other firms. His next job was in a different role, but the training he received made him attractive for it.

    Who was punished by it?

    If we completely eliminate NCAs, we reduce the willingness of firms to make those investments in employees. If you're fine with that, great! Just be aware it is not a costless decision.

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  4. Pwjohns1983

    Noncompetes are highly prevalent among doctors. Given that I work almost entirely in the hospital (and thus cant really recruit patients to my new hospital of course) they dont seem to be a big deal for me. When I left my previous job I left for a hospital that was within the radius of my noncompete and my boss still let me go. I imagine it is different for outpatient docs. I wonder if they will be treated as executives as they often make lots of decisions about how the practice is to be run.

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  5. Tla

    While it’s possible overreach on the part of FTC as I would rather see Congress act, non competes should be outlawed if possible. As someone who has been sued in violation of non-compete despite waiting it out and as someone who routinely tries to hire people who are trapped by non compete, there is no question of the abuse to both stifle competition and trap employees.

    Even with non-competes banned, there are still many ways to protect legitimate business interests. Confidentiality and IP agreements remain legal. Gardening leave where you continue to pay employees to remain off the market are still legal (that’s what my company does to protect ourselves from ill timed departures). Even in client/sales situations, non-solicits are still workable as far as I know.

    I understand that some will argue that companies need to protect the training and development they pour into developing talent and they do. However, companies are not going to stop doing this as they primarily train staff because they want to be competitive and not out of altruism . The best way to protect that investment is to treat good employees with generosity and kindness.

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  6. Exhausted

    Absolutely not. Yet another cabinet official trying to run my life. So who is a third person I can cote for

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  7. Jacob.Jacobson

    Totally in favor. As a senior exec in corporate world loathed the concept and never used it when I was a CEO of medical technology venture.

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    Todd T

    If Trump went to Greece he could hide in plain sight.

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    Wombom

    Non-compete agreements are rarely enforced by judges. In all 50 states, judges are likely to take a dim view of them, or rule that the employee must be paid during the non-compete period.
    So on its face, this may seeem like a "major question" that is subject to the "major questions doctrine" but in reality it likely is not.

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    1. Tla

      They are hard to enforce, but they don’t need to be legally enforced to work. Most people don’t want and can’t personally afford being sued. Banning them would prevent employers hanging them over the head of employees.

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        Wombom

        Right, most people, if they aren't scared by the contract itself, are scared by the first cease and desist letter that comes in threatening legal action.
        I just don't think a general statement of "this thing that judges don't actually enforce can no longer be a subject of threats in employee contracts" is a "major question". It's the equivalent of housekeeping for the legal profession.

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    Citizen60

    Silicon Valley wouldn’t exist if non-compete clauses were enforced. The chip designers and makers at Fairchild Semiconductor left and started Intel. Seymour Cray left Control Data to start Cray Computing.

    The few tech jerks bosses who tried to enforce non-compete clauses lost in court with California’s “at will” employment statue. That door swings in both directions.

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