FTC’S Final Rule Banning Use of Non-compete Agreements Will No Longer Take Effect September 4, 2024

On August 20, 2024, a Texas federal district court ruled that the Federal Trade Commission’s (FTC) Final Rule banning the use of non-compete agreements was unlawful, and therefore should not be enforced nationwide as planned.

The Final Rule, which had been facing numerous legal challenges, was set to take effect on September 4, 2024. The looming effective date and uncertainty regarding its legal challenges had employers facing dilemmas on how to handle current non-compete agreements and the notice requirements the Final Rule would have required.

In her Order, Judge Ada Brown concluded that not only was agency action unlawful, but that the Final Rule was “arbitrary and capricious.” Furthermore, Judge Brown stated that the Final Rule’s sweeping ban failed to consider the positive benefits of non-compete agreements. As the result of Judge Brown’s order, the Final Rule will not become effective on September 4, 2024 as originally scheduled.

Although state specific restrictions on non-compete agreements remain in effect, the Court’s decision barring the implementation of the Final Rule should provide employers relief that for the time being, non-compete clauses and restrictive covenants will continue be a tool to prevent unfair competition and protect against misappropriation of the employer’s confidential information. The FTC has stated that it is considering an appeal of Judge Brown’s ruling.

Moving forward, employers should continue to exercise caution and narrowly tailor all restrictive covenants, including non-compete clauses, in order to protect their legitimate business interests. Determining whether a non-compete or other restrictive covenant is enforceable under current law is a fact-specific inquiry. The attorneys at Dvorak Law Group are available to discuss, advise, and assist with any issues regarding non-compete clauses or other restrictive covenants.

Julie Schultz Self