Earlier this year, we wrote about the Federal Trade Commission (FTC) enacting a final rule to ban most all forms of non-compete agreements between employers and employees in the United States (available here). The ban was set to take effect on September 4, 2024. However, on August 20, 2024, the United States District Court for the Northern District of Texas issued an order concluding that the FTC exceeded its authority in enacting the non-compete ban and enjoined the final rule permanently and nationally.
The FTC has indicated that it is strongly considering an appeal to that federal court decision, which the agency has until mid-October to file. Even if the FTC appeals, unless a court orders otherwise, the non-compete ban will remain unenforceable during any appeal process. There are additional challenges to the non-compete ban pending in other states, which could set up a circuit split and lead to an eventual opinion from the United States Supreme Court to ultimately decide whether the FTC has authority to ban non-compete agreements nationally. Employers should continue to monitor court updates on the FTC’s final rule and any appeals that could be filed from those court decisions.
Even if the final rule fails, the FTC’s attempt to enact a non-compete ban achieved the purpose of bringing such employment covenants to the national spotlight. Many states have already outlawed non-compete covenants, there are additional movements to restrict or ban them in states where they remain enforceable, and many employees are now more aware of the burdens non-compete agreements can place on their future employment prospects and may be more hesitant to accept employment under such restrictions. The FTC’s final rule serves as a reminder to be intentional and thoughtful when drafting employment covenants and deciding which job positions should be subject to non-compete agreements. Employers should sometimes consider alternatives to non-compete covenants such as non-disclosure agreements and covenants that prohibit employees from soliciting the employer’s clients, customers, and employees.
