Federal Court Judge Strikes Down FTC’s Rule Banning Non-Compete Agreements
On August 20, 2024, Texas Federal Court Judge Ada E. Brown struck down the FTC’s rule banning non-compete agreements and did so on a nationwide basis. Meaning, U.S. employers are no longer required to adhere to the September 4, 2024 compliance date.
In this same case, Judge Brown originally halted enforcement of the FTC rule against only the specific parties, but now with this August 20 order, she broadened her ruling finding that the FTC ban on non-competes could not be implemented at all.
In ruling that the FTC rule should not be enforced or otherwise take effect on a nationwide basis, the Judge found that: (1) the FTC does not have the power to issue the rule because Congress only authorized the FTC to issue procedural rules to address unfair methods of competition, not substantive rules; and (2) the rule itself is “arbitrary and capricious” because it was unreasonably overbroad; the rule aimed to have a “one-size-fits-all” approach, with no end date; no state in the country has a non-compete ban so broad; the rule took a blanket approach, rather than targeting specific harmful non-competes; and as the FTC did not consider positive benefits of non-competes or potential alternatives to a nationwide ban.
So, what now?
The FTC could appeal and seek an emergency order prior to September 4 and some news outlets are reporting that the FTC is at least considering appeal (emergency or otherwise). The likelihood that the appellate court in question would reverse the Texas federal court order is very slim. The next step after the 5th Circuit would then be an appeal to the US Supreme Court.
What does all this mean for employers?
In one word: Phew. You are not required to do anything. The FTC ban on non-competes is no longer an issue. If an appellate court changes this status, we'll provide a follow-up.
What if I already sent out those FTC notices about the non-compete ban to my employees with non-compete agreements?
Hopefully, you’ve been following these emails and holding off on sending the notices, but if you already did, please contact your legal counsel to work through those details.
In preparation for the implementation, I’ve reviewed my non-competes and non-solicitations and I think they could use some work.
If you have changes that you’d like to implement, you can amend or replace your agreements. Before you take those steps, you should run that by your legal counsel to be sure all of the other critical portions of your agreements remain in place and effective. Having clear non-compete and non-solicitation clauses that both employers and employees can understand is helpful, even now without the FTC ban.
Please contact an employment law attorney with any questions and we will continue to update you.
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Disclaimer: This information is intended for general information purposes only and is not intended, nor should it be construed or relied on, as legal advice. Please consult your attorney if specific legal information is desired.