As we previously reported, the Federal Trade Commission (FTC) attempted to implement a rule that would effectively ban most non-compete agreements, originally set to take effect on September 4, 2024. However, this rule has faced various legal challenges in federal courts.
On August 20, 2024, the U.S. District Court for the Northern District of Texas blocked the FTC’s rule, holding the FTC exceeded its statutory authority in implementing the Rule, and the Rule is arbitrary and capricious. The decision is a significant victory for the plaintiffs, which included an accounting group and other business organizations. However, the ruling has broader implications, affecting employers nationwide. Under the FTC’s rule, employers would have been required to notify current and former employees subject to non-compete agreements that their non-compete would no longer be enforced. As things currently stand, it is unclear if employers will ever have to provide such notices or otherwise refrain from utilizing non-compete agreements in the future.
While the rule is currently inactive, it is expected that the FTC under the Biden administration will appeal the Texas court’s decision. Of course, the FTC’s strategy could ultimately shift depending on the outcome of the upcoming U.S. presidential election in November. Regardless of the status of the FTC’s rule, employers should still note that various state laws may have increased restrictions on the use of non-compete agreements, including outright bans in several states.
While the fate of the FTC’s rule could remain in limbo for years, if you have any concerns about the use of non-compete agreements in your business or about any other employment-related issues, please reach out to your contact at Mansour Gavin or one of our Labor and Employment attorneys.