Federal Court Blocks Nationwide Enforcement of FTC Non-Compete Rule

In January 2024, the Federal Trade Commission (FTC) issued a Final Rule aimed at banning most non-compete agreements between employers and workers. This rule, which was set to take effect on September 4, 2024, would have prohibited employers from entering into new non-compete agreements and required them to rescind existing non-compete agreements, with limited exceptions (as previously explained in Stein Adler’s Employment Alert HERE).

However, on August 20, 2024, a ruling by the U.S. District Court for the Northern District of Texas blocked the FTC’s rule from taking effect nationwide. Judge Ada E. Brown’s decision prevents the rule from being enforced, providing a temporary reprieve for employers.

Key Takeaways

• Judge Brown’s ruling overturns the FTC’s Final Rule on a nationwide basis, ensuring that, for now, employers can continue to enforce non-compete agreements that are compliant with applicable state laws, and are not required to issue notices to employees or former employees regarding non-compete agreements.
• The court found that the FTC exceeded its statutory authority in attempting to enforce a substantive rule and that the rule itself was arbitrary and capricious, primarily due to its overly broad and one-size-fits-all approach.
• The FTC is expected to appeal this decision, but this process will likely take time. Absent a stay or reversal, the rule will not go into effect, and businesses do not need to take any immediate action regarding the FTC’s mandates.
• Despite the federal block, employers must still comply with state laws regulating non-compete agreements, as some states, like California and Minnesota, have strict prohibitions.

If you have questions about this ruling and how it may impact your business, or any other employment related questions or concerns, contact Stein Adler employment attorneys Jonathan Adler, Casey Hail, or Melanie Sarver.