Perspectives
The FTC’s Existential Concern: Will the Non-Compete Ban Survive?
Jean-Paul Sartre put it best: “Nothing has changed, and yet everything is different.”
As you may know, the FTC proposed a nationwide ban on non-compete agreements which was set to go into effect on September 4, 2024. Now, the Northern District of Texas has struck down the rule nationally. This decision is a major blow to the FTC’s rule, but not its end.
What happened?
In July of 2024, the Texas court issued a preliminary injunction that only extended to the parties of the present lawsuit and chose not to address whether a national injunction was necessary. On August 20, 2024, the Texas court held that the FTC did not have the statutory authority to issue such a rule and that doing so was arbitrary and capricious. The court further explained that the rule needed to be set aside at the national level because of the Administrative Procedures Act (APA). We anticipate that the FTC will file an appeal to the 5th Circuit in short order.
What’s changed?
As Mr. Sartre put it, nothing. However, this does not mean that non-compete agreements are back on the menu for everyone. Many states have banned non-competes, and this ruling does not affect those state laws. It is up to you as an employer to make sure that you are still complying with your state’s laws while the FTC rule is in limbo. You should reach out to employment counsel if you have concerns or questions about whether you are properly complying with your state’s applicable laws.
What’s different?
With the Supreme Court of the United States’ recent decision regarding “Chevron deference” and the FTC’s likely appeal of this ruling down in Texas, there is a good chance that this case could be headed to the Supreme Court. As a result, we may see further changes to the agency state and executive powers in the near future. The legal landscape is different.
What now?
If you have not taken any steps to come into compliance with the FTC’s rule, you’re in luck! You can keep doing what you’ve been doing for a little while longer as the FTC pursues its appeal.
If you decided to take early action and issue FTC compliant notices to your employees and former employees, you should consult your employment counsel to determine how best to resolve the situation. Unwinding the clock may be impossible, but there are other ameliorative steps that you can take depending on the specific circumstances.
Regardless of how you have prepared for the FTC rule, this is a great time to review your restrictive covenants and focus your attention on the things you aim to protect: business information and relationships.