A Texas judge “set aside” the Federal Trade Commission’s (FTC’s) proposed ban on most non-compete agreements (the “Rule”) on August 20, 2024. It is likely that this federal district court judge’s order will have nationwide effect, not merely in the Northern District of Texas. The court ordered that “the Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024 or thereafter.” The court found that the FTC had exceeded its statutory authority in implementing the Rule and it was arbitrary and capricious. The FTC is expected to appeal the decision.
For now, non-competes can remain in place subject only to applicable state law. There are also other pending challenges that may make their way to multiple circuit courts. It is unclear whether the Rule will be upheld by any of these other courts or potentially the U.S. Supreme Court. However, the FTC continues to assert that this decision “does not prevent the FTC from addressing non-competes through case-by-case enforcement actions.”
Currently, employers are probably safe to not feel obligated to follow any of the Rule’s provisions, including the obligation to send written notices to workers subject to these agreements. Although it now seems likely that employers may still enter into and seek to enforce non-compete agreements with employees and contractors, employers must still comply with applicable state and local laws.
Given the uncertainty of the legal landscape surrounding non-compete agreements and the increasing attention being paid to non-compete agreements by the FTC, employers should consult with legal counsel to ensure their agreements are tailored appropriately to comply with all local, state and federal laws and regulations.
For Eli HR customers using our standard new hire agreements, your current agreements are in order. As the regulations change, they are reviewed and amended to comply. If there is ever any corrective action needed, we will let you know.
