On Tuesday, August 20, 2024, a federal judge in Texas set aside the Federal Trade Commission (“FTC”) Rule banning the use of noncompete agreements in employment, which was set to take effect on September 4, 2024. The judge held that the FTC exceeded its statutory authority in making the Rule, and that the Rule violated the Administrative Procedures Act because it was arbitrary and capricious.
As we explained in our prior post, the Rule would have rendered most noncompete agreements unenforceable, and imposed specific notice requirements on employers for employees with existing noncompetes. For now, the Rule is effectively blocked nationwide, pending a potential appeal by the FTC. At this time, employers can continue to utilize and seek enforcement of their otherwise enforceable noncompetes without regard for the FTC’s Rule.
Regardless of the viability of the FTC Rule, noncompetes continue to face heavy scrutiny from lawmakers and some courts across the country. For example, last month, Pennsylvania imposed new limitations on noncompetes for health care practitioners. Last year, two separate bills that would impose significant limitations on the enforceability of noncompetes were re-introduced by both Republican and Democratic lawmakers in the U.S. Senate and House of Representatives. Now that the FTC Rule has been struck down, these bills could be revisited.
Employers who utilize noncompetes should stay informed on the latest developments in the ever-changing noncompete landscape. We will continue to monitor and provide updates on developments with the FTC’s likely appeal of the court’s decision to set aside the Rule on noncompetes.