The Northern District of Texas’s nationwide ban on the Federal Trade Commission’s (FTC) noncompete rule, which aimed to curb unfair competition by voiding noncompete provisions, hasn’t put a complete halt to government enforcement efforts. Instead, state attorneys general are ramping up their own actions against noncompetes under their respective unfair and deceptive practices acts.
Each of the 50 states possess unfair, deceptive, and abusive practices (UDAP) statutes that permit investigations against unfair or deceptive acts affecting consumers. States like California, Minnesota, North Dakota, and Oklahoma have already banned noncompetes entirely, regardless of where the agreements were signed or any choice of law provisions.
Furthermore, many states have restricted noncompetes for specific categories of workers, often including exceptions for high-wage earners or key employees. Currently, only 11 states haven’t enacted legislation restricting noncompetes but continue to employ common law protections and UDAP statutes to scrutinize such agreements.
Illustratively, in July, Valvoline entered into a settlement with seven states’ attorneys general over alleged unfair labor practices connected to its noncompete agreements, leading to Valvoline paying $500,000 to each settling state. Similarly, California’s Attorney General Rob Bonta announced a stipulated judgment with CK Franchising and SDX Home Care Operations, resolving allegations under California’s Unfair Competition Law.
Even states without specific noncompete bans have joined multistate coalitions investigating employers under UDAP statutes. In 2020, North Carolina Attorney General Josh Stein reached a similar settlement with multiple fast-food chains over no poach agreements, despite lacking a noncompete ban.
State attorneys general can issue civil investigative demands or subpoenas if there’s reasonable cause to suspect UDAP violations. These investigations often lead to settlements involving significant civil penalties and legal fees, a compelling concern for companies operating across state lines. Given the cooperative trend among state attorneys general, companies could face multistate investigations and corresponding consumer litigation.
Despite the FTC rule’s nationwide ban, businesses should take a cautious approach with noncompete agreements. Employers should ensure compliance with each state’s restrictions, tailoring agreements narrowly regarding terms like duration and geographic scope to mitigate the risk of legal challenges.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.