Politics

Section 5: Why the FTC’s Case-by-Case Approach Beats a Noncompete Ban 

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Executive Summary:  

  • The Federal Trade Commission’s blanket ban on noncompete agreements was finalized in April 2024 but was immediately struck down by the federal court later that year. 
  • On September 1, 2026, Representatives Scott Peters (D-CA) and Tom Kean, Jr. (R-NJ) reintroduced the Workforce Mobility Act, which would impose a similar nationwide ban through legislation rather than agency rulemaking.  
  • Rather than pursuing another blanket ban, the FTC has pivoted to case-by-case enforcement under Section 5 of the FTC Act, which targets genuine labor coercion without the tradeoffs of a nationwide ban.  

Introduction 

On September 1, 2026, Representatives Scott Peters (D-CA) and Tom Kean, Jr. (R-NJ) reintroduced the Workforce Mobility Act. It focuses on “limiting employers’ ability to force employees to sign noncompete agreements except in certain cases”. This lands after the Federal Trade Commission’s own nationwide noncompete ban died in court and was formally struck from the Federal Register earlier this year.  

What is a Noncompete Agreement? 

A noncompete agreement (NCA), as defined by the New York State Attorney General, is an agreement that prohibits an employee from working for a competitor or opening a competing business, typically for a certain period of time and within a certain geographic area after an employee leaves a job.  

Noncompete agreements have ambiguous effects economically- it increases labor mobility, which in turn increases wages, but decreases human capital investment, which in turn lowers wages. For instance, a study performed by Evan Starr and Michael Lipsitz analyzed the 2008 Oregon ban on NCAs for hourly paid workers. They found that banning noncompete for hourly workers increased hourly wages by 3–4 percent on average. Another study performed by Balasubramanian et al. analyzed noncompete bans for technology workers in Hawaii and found that labor mobility increased by 11 percent. On the other hand, another study by Evan Starr shows that moving from zero enforcement to average noncompete enforcement is associated with a 14 percent increase in firm-sponsored training. 

Before 2023, noncompete enforcement sat almost entirely with state courts, reviewed case by case, on whatever terms state law allowed. This equilibrium was disturbed by the FTC in January 2023, when it proposed a near-total ban on NCAs. The proposal was finalized by April 2024 and was immediately challenged and thrown out by the courts. 

Here’s the part nobody wants to say out loud: the FTC didn’t lose because a nationwide noncompete ban is a bad idea in the abstract, but rather because it does not have the power to rewrite the rules for 340+ million people. Additionally, FTC’s NPRM (notice of proposed rulemaking) cites mixed literature wherein low-wage occupations can be subject to noncompete that both hardly seem justified and take advantage of workers’ lack of information or bargaining power but also acknowledges that non-competes encourage employers to create and share trade secrets and incentivize employers to invest in human capital through training. Some jobs entail a lot of worker investment, including out-of-pocket costs for advanced training. Firms may be less willing to make these investments if they cannot reap the returns over a reasonable period of time. Legal boundaries aside, the evidence cited by the FTC does not make it clear whether such a sweeping prohibition would enhance welfare.  

So, What is Preferred? 

The FTC dropping its blanket rule does not mean that the agency went home; rather, it pivoted to Section 5 of the FTC Act through case-by-case enforcement. Section 5 offers the FTC extraordinary breadth and elasticity, which was the original congressional intent, later upheld by the Supreme Court in FTC v. Sperry & Hutchinson Co., wherein the court ruled that Section 5 empowers the Commission to reach practices beyond the “letter or spirit” of the antitrust laws.  

Why Section 5?  

  1. “Rule of Reason” standard: There’s empirical evidence showing that blanket bans can accidentally harm innovation by removing an employer’s incentive to invest. Treating noncompetes under a case-specific “rule of reason” inquiry balances competitive restrictions against an employer’s legitimate business justifications.  
  1. Legal Advantage: When FTC proposed a federal ban, it was immediately blocked by federal courts. Section 5’s enforcement rests on court-upheld authority and allows FTC to actively police out bad actors without risking years of litigation. Recent examples include FTC vs Gateway, where Gateway Services, the largest pet cremation business in the US, forced nearly 1800 employees (including executives and hourly truck drivers) to sign strict noncompete agreements. In the Gateway action, the FTC completely bypassed this constitutional gridlock as Section 5 explicitly grants it the authority to investigate and prosecute individual unfair business methods; Gateway could not counter-sue over the agency’s right to exist or regulate. 
  1. Focus on genuine abuse: Case-by-case scrutiny allows the agency to target systemic, egregious labor coercion. This targeted approach cures actual market harm without disrupting standard corporate mechanisms.  

Conclusion 

Congress reintroducing the Workforce Mobility Act feels a little like building a sledgehammer to open a jar the kitchen already has an opener for. The FTC already has a better tool at its disposal, and it is already producing results. Not every noncompete ends up in court, but that is even more of a reason for the FTC to strengthen Section 5 enforcement by bringing up more cases at a faster pace.