FTC Non-Compete Ban Blocked from Taking Effect
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APPLIES TO All Employers |
EFFECTIVE August 20, 2024 |
QUESTIONS? Contact HR On-Call |
Quick Look
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Discussion:
The U.S. District Court for the Northern District of Texas ruled the Federal Trade Commission’s (FTC) final rule prohibiting all non-competition agreements to be unlawful. This ruling has nationwide effect and blocked the FTC’s rule from going into effect on September 4, 2024. The court previously issued a limited preliminary injunction which prevented the rule from being enforced against the plaintiffs in the case. This ruling is now the final judgment in this matter.
In this case, a tax consulting firm in Dallas, TX and the U.S. Chamber of Commerce separately filed claims to vacate and set aside the rule. In its ruling, the court applied the Administrative Procedure Act and found the FTC’s rule: (1) exceeded the FTC’s statutory authority; and (2) was arbitrary and capricious because it was “unreasonably overbroad without a reasonable explanation.” The court noted that the FTC did not consider the benefits of non-competition agreements or any evidence supporting the need for them. This ruling means employers no longer have to prepare notices to current and former employees informing them of the effect of the rule on their non-competition agreements.
Contrasting with this ruling is a decision from the U.S. District Court in Pennsylvania which upholds the FTC’s ban by denying a preliminary injunction against it. This ruling impacts employers nationwide as well. With the conflicting Pennsylvania ruling, and the FTC likely appealing the Texas ruling, the final fate of the rule will ultimately be resolved by a higher court. Until then, employers should be aware that there are several bans and restrictions on non-competition agreements at the state level. Regardless of this ruling, employers should consult with legal counsel regarding any current or future non-compete agreements to address compliance with state requirements.
Action Items
- Review non-competition agreements with legal counsel.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase