FTC Rule Banning Non-Competes Is Set Aside

On August 20, 2024, the U.S. District Court for the Northern District of Texas set aside the Federal Trade Commission’s (FTC) nationwide rule (Rule) banning non-competes. The Rule was scheduled to take effect on September 4, 2024, and while this decision may be appealed, any appeal is unlikely to be ruled upon before September 4. For now, non-compete agreements will continue to be governed by state law.

Employers that did not previously provide notice to current and former employees of the Rule (in accordance with the requirements of the Rule) should continue to monitor further developments. For those employers that did issue notices to their workforce under the Rule, and wish to take action to repeal the notices, there are three options:

• Wait and See: Employers can wait and see if the decision is appealed and then act accordingly.
• Issue a New Notice: Employers can issue a new notice to the affected individuals that the prior notice is retracted and now void and clarify that their existing non-compete obligations remain enforceable.
• Issue a Conditional Notice: Employers can issue a conditional notice stating that the prior notice is void unless and until the Texas court’s decision is overturned and the Rule goes into effect. If an employer previously issued a conditional notice, it should consult with counsel about whether any additional notice is needed.

Despite this recent development, employers should take this opportunity to carefully review—with the assistance of experienced counsel—their non-competition, non-solicitation, and other post-employment restrictions in place with current and former employees to ensure compliance with applicable state law. For example, some employers may apply the law of their state of incorporation or headquarters to all employees with non-competes even though certain states require that employers choose the governing law based on where the employee is located.

A growing number of states are addressing this matter independently, either by imposing restrictions on or outright banning non-compete agreements.

For an in-depth understanding of non-competes, we recommend viewing our on-demand webinar, Navigating the Complex World of Non-compete Agreements: A Comprehensive Webinar for Employers.