By Brooke Thomson
President and CEO 

The use of non-compete agreements once again rests with Massachusetts law. 

That’s because a federal court in Texas last month threw out a proposed nationwide ban on non-competes agreements that was set to take effect September 4. In her ruling, Judge Ada Brown of the U.S. District Court for the Northern District of Texas wrote that the federal agency had overstepped its power when it approved the ban. 

“The FTC (Federal Trade Commission) lacks substantive rulemaking authority with respect to unfair methods of competition,” she wrote. “The role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do.” 

The federal ban would have superseded a partial Massachusetts ban on non-competes that was carefully negotiated in 2018. The law limits non-competes to one year for most workers and may not be used for workers entitled to overtime pay (i.e. hourly, mostly lower-income workers). 

The FTC rule would have banned all new non-compete agreements regardless of the circumstances. The rule would have also retroactively undone and invalided most existing non-compete agreements with only a minor exemption for employees considered to be “senior managers.” 

Judge Brown’s ruling means that Massachusetts employers and workers will continue to operate under the 2018 law. AIM is pleased with the outcome because the federal ban went too far, and the state law represented a fair compromise. 

Sam Larson, AIM’s Vice President of Government Affairs, believes the proposed federal ban would have impeded a competitive edge the state law currently provides to Massachusetts companies. 

“We’re always trying to attract top tier talent, and one of the advantages we (have) had is that the non-competes in Massachusetts were very limited compared to the way they are treated in other states,” Larson told public radio station WBUR recently. 

Non-compete agreements that are fair to both companies and employees are a vital part of protecting Massachusetts’ global competitive advantage.  They protect investments and ideas created by employers of all sizes, from all industries, and from every corner of the commonwealth.  Massachusetts cannot be an “invented here and manufactured elsewhere” economy. 

Judge Brown’s decision is part of a larger legal debate over the role of government administrative agencies like the FTC.  

The US Supreme Court issued a ruling in June that cut back sharply on the power of federal agencies to interpret the laws they administer and ruled that courts should rely on their own interpretation of ambiguous laws. The decision will likely have far-reaching effects across the country, from environmental regulation to health-care costs. 

The FTC says it may appeal Judge Brown’s decision, but many observers say it’s not likely to be successful, given the legal landscape. That means the best chance for federal rule is a law passed by Congress, but that’s also unlikely in an election year. 

So, at least for the moment, Massachusetts employers rest on familiar ground with the use of non-competes. 

If your company cares about this issue, wants to get involved or hear more information, please email Sam Larson at: slarson@aimnet.org.