Real World Impact: The recent decision by a Texas federal district court judge enjoining the Federal Trade Commission (FTC) from implementing its regulation banning most noncompetes provides relief for the parties in that case but will not directly impact other employers . . . at least for now. While the ultimate viability of the FTC’s rule may be in question, to avoid future legal challenges to noncompete agreements, employers should continue to scrutinize these agreements to ensure they are strong, yet narrowly tailored to protect employers’ legitimate business interests.
Background: Fulfilling her promise to issue an opinion on the FTC’s Noncompete Rule by Independence Day, Federal District Court Judge Ada Brown issued a Memorandum Opinion and Order, as well as a Preliminary Injunction, on July 3, 2024, immediately enjoining the FTC from implementing or enforcing the Noncompete Rule—but only against the Plaintiff, Ryan, LLC and the Plaintiff Intervenors, Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce—and staying the effective date of the Rule as to only those businesses and organizations (and only those organizations’ employees, not their members). Judge Brown expects to have a ruling on the merits by August 30, 2024, before the Rule’s September 4, 2024, effective date.
Given Judge Brown’s opinion, which calls into serious question the FTC’s authority to create the Final Rule in the first instance, and given the United States Supreme Court’s recent opinion in Loper Bright Enterprises v. Raimondo, which eliminated Chevron deference to agency decisions, it is doubtful that the FTC’s Final Rule will survive judicial scrutiny. But with the limitations of this opinion, what are employers to do now?
The Bottom Line
Our advice remains the same as it was when the Final Rule was first announced. While the FTC’s Final Rule may never be implemented, the hostility towards these types of agreements by state legislatures and state courts continues. Employers should continue to review and revise (with assistance of counsel) their existing agreements to ensure that the agreements are strong, yet narrowly tailored to protect employers' legitimate business interests, including the protection of confidential information, customer goodwill and employees. And employers should work with their Human Resources and IT departments to develop comprehensive policies which will protect their confidential information and trade secret information when an employee departs.
