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As many businesses across the United States are probably aware, the Federal Trade Commission’s (FTC) controversial rule banning most employment non-compete agreements was set to take effect on September 4, 2024. Almost immediately after that rule was enacted, it was challenged by the U.S. Chamber of Commerce and other business groups in the United States District Court for the Northern District of Texas.
We now know the outcome of that challenge. While the district court initially enjoined the implementation and enforcement of the rule as to the named plaintiffs only, on August 20, 2024, the district court expanded the breadth of its order by striking down the rule entirely, permanently blocking enforcement of the rule nationwide. In reaching its decision, the district court found that the FTC had exceeded its statutory authority when finalizing the rule and that the rule was arbitrary and capricious. The FTC has indicated it may appeal the decision.
Now that the rule has been permanently blocked nationwide, employers do not need to take measures to comply, including the requirement to notify workers who have non-compete agreements that their agreements are not enforceable. For now, since restrictions on non-compete agreements vary by state, employers must continue to ensure compliance with applicable state law when implementing and attempting to enforce non-compete agreements.
As noted in our original article on the FTC rule, a number of states, including California, have laws in place that are as, if not more, restrictive than the proposed FTC rule. Businesses concerned about the FTC’s rule being revived may want to work with counsel in rethinking alternatives to non-compete agreements, such as shoring up their confidentiality agreements and non-solicitation agreements, which are not quite as controversial as non-compete agreements.
Employers seeking more information about non-compete agreements should contact their RJO attorney or the authors of this article.
