On August 20, 2024, a Texas Federal Court issued a nationwide bar on the enforcement of the Federal Trade Commission (“FTC”) rule banning nearly all non-compete agreements (the “Final Rule”), which,
as we have previously advised, was slated to go into effect on September 4, 2024. This means that, for now,
the FTC’s Final Rule will no longer go into effect on September 4, 2024. As a result, unless an Appellate Court intervenes:
- Existing non-compete agreements remain valid and enforceable to the same extent they were prior to the enactment of the Final Rule;
- Employers are not prohibited from entering into new non-competes with employees; and
- Employers do not need to comply with the requirement of sending out notices invalidating existing non-competes to employees.
- It is unclear when—or if—the FTC’s Final Rule banning non-competes will take effect. The FTC has indicated it may appeal this decision. Such an appellate process will likely take months, if not years, to conclude and could ultimately end up before the U.S. Supreme Court.
In the meantime, employers should be aware that:
- The FTC has signaled that it is actively seeking to bring lawsuits challenging employee non-competes that are over-reaching and not supported by recognized legal considerations.
- Even if the FTC’s Final Rule is rejected, employers still face restrictions on non-competes at the state level;
- State laws governing the use of non-competes are ever-changing, with new laws being enacted in many states in 2023 and 2024.
Given the overall uncertainty, employers using non-compete agreements and other restrictive covenants should consult with counsel regarding the enforceability of such agreements. Employers continue to have multiple other options to combat unfair competition from former employees, including through the use of non-solicitation, trade secret, and confidentiality clauses where enforceable. Flaster Greenberg actively monitors developments in this area and can assist employers in the protection of their legitimate business interests.
