Better Wages and Working Conditions: How States Should Tackle Noncompete Agreements, “TRAPs,” and Other Restraints On Worker Mobility
The purpose of this memorandum is to provide model legislation and relevant context for state lawmakers seeking to protect workers, small businesses, and consumers from the harmful effects of noncompete agreements. Over the course of this memorandum, we describe what noncompete agreements are—including agreements that function as noncompetes—and describe best practices for banning them outright.
On April 23, 2024, the Federal Trade Commission adopted a final rule banning noncompete agreements between employers and workers. Economic Liberties’ research breaks down how this ban would have a positive effect on workers’ wages across each state. The week after the FTC’s final rule, three separate challenges were filed in federal court to block the rule. Amid these developments and the political and legal uncertainty facing the FTC’s new rule, we find several reasons for state lawmakers to promptly introduce legislation that protects workers, consumers, and small businesses.
1. State laws can be more broadly applicable than the federal rule. The federal rule establishes a regulatory floor, and state laws that apply more broadly than the federal rule are not preempted. While the FTC rule broadly applies to all workers under its jurisdiction, that jurisdiction does not extend to certain entities outside of the FTC’s jurisdiction under the FTC Act, including certain nonprofit entities.
2. State laws are more durable against potential challenge or revocation. In recent years, activist judges have proven willing and eager to block federal rules, even where there is a clear delegation of rulemaking authority. Federal rules are also vulnerable to revocation by future administrations. State laws are less vulnerable to these same challenges and more difficult to repeal.
3. State laws can be more broadly enforceable. Unlike the federal rule, which is enforceable primarily by the Federal Trade Commission, state laws can also be enforced by state attorneys general, state agencies, and members of the public via a private right of action. State laws can also include penalties that provide a greater deterrent effect than the penalties available under enforcement of the federal rule.