On August 20, 2024, a federal judge in Texas issued a nationwide injunction striking down a rule issued by the Federal Trade Commission (“FTC”) banning the use of most employer/employee non-compete agreements. As a consequence, the FTC’s proposed ban on most non-compete agreements is blocked for the foreseeable future.
Earlier this year, the FTC issued a new rule (the “Non-Compete Rule”) banning virtually all employee non-compete agreements, scheduled to go into effect on September 4, 2024. Specifically, the FTC’s Non-Compete Rule would ban almost all new non-compete clauses with workers and invalidate virtually all existing non-compete clauses with employees other than “senior executives”. The Rule would also prohibit employers from enforcing non-compete agreements already in effect. Perhaps the most urgent part of the Non-Compete Rule was its requirement that employers send out a notice by September 4, 2024 regarding the FTC’s non-compete ban to anyone who had previously signed a non-compete clause that would be unenforceable as a result of the new rule. The former employees who would need to receive the notice include anyone with a non-compete that had not already expired.
However, the nationwide injunction just issued by the federal court in Texas protects employers from the FTC’s non-compete ban. As a result of the Texas court’s decision in Ryan, LLC v. FTC, you can still enforce a current non-compete agreement against a former employee who sets up a business that competes with yours or takes a job with a competitor, for the time being.
Importantly, at least for now, employers do not have to send out the notices mentioned above.
The FTC is likely to appeal the Texas court’s decision. Moreover, there are other cases in which the FTC is still defending its new rule banning non-compete agreements, so it’s unlikely that the federal court in Texas will have the last word on the matter. For now, however, employers can put plans to comply with the FTC’s rule banning employee non-compete agreements on hold.
Notwithstanding this recent decision impacting the enforcement of non-compete agreements, it would be wise to consider other ways to protect your business’s trade secrets, customer lists, and confidential information because non-compete agreements will continue to remain controversial.
We continue to monitor developments in the many pending lawsuits concerning the enforceability and legality of the FTC’s Non-Compete Rule. We are always available to help our clients understand the impact of this recent decision and the ongoing legal challenges to the FTC’s non-compete ban.
A link to the Texas Federal Court’s decision in Ryan, LLC v. FTC can be found here.
