As we predicted, on August 20, 2024, hours after our latest FAQ, a federal judge in the Northern District of Texas struck down the Federal Trade Commission’s (FTC) proposed nationwide ban on non-compete agreements. The Texas court found that the FTC exceeded its authority and declared the Non-Compete Rule "unreasonably overbroad." As a result, the rule banning non-competes, which was set to go into effect on September 4, 2024, has been blocked and will not be implemented unless overturned by an appellate court or the U.S. Supreme Court.
In short, the Texas court ruling held that the FTC had overreached its statutory authority by attempting to enforce a nationwide ban on non-compete agreements and that the ban was arbitrary and capricious. The Texas judge further opined that such a significant change should come from Congress rather than a regulatory agency like the FTC.
For now, this means that non-compete agreements are still legal nationwide (subject to each state’s specific laws on non-competes). With the FTC’s rule blocked, the enforceability of non-compete agreements will continue to be governed by state laws, which vary significantly. Simply put, employers can continue using non-compete agreements as long as they comply with relevant state regulations.
For employers, the ruling provides relief from the impending federal ban, allowing them to maintain existing non-compete agreements under state law. Employees, on the other hand, may continue to face restrictions on their ability to work for competitors or start competing businesses, depending on their state’s laws.
A copy of the ruling is attached for convenient review and information.
OlenderFeldman will continue to provide further updates as they become available. For more information on compliance, please contact the OlenderFeldman Employment Practices Group here.
