This past spring, the Federal Trade Commission (FTC) proposed a rule that would have banned non-compete agreements nationwide. However, this week, a federal court in Texas ruled that the FTC lacked statutory authority to implement the rule,[1] which was set to go into effect on Sept. 4, 2024.
Judge Ada Brown ruled not only that the FTC did not have the authority to impose such a ban, but also that the rule was arbitrary and capricious, in that there was insufficient evidence produced to support a complete ban on non-competes, rather than a targeting of solely those non-competes which could be considered “harmful.”
Non-competes are meant to prevent employees from leaving one company to join a competitor or start their own competing business. They are also a way for employers to protect their company’s important and private information. While the FTC asserted that non-competes are an “exploitive practice” that violate workers’ “fundamental freedom” to change jobs or start their own business, business owners argued that non-competes protect their confidential information that is essential to their continued operation.
The Texas court’s ruling applies nationwide, and the FTC is reportedly considering an appeal.
If you use non-compete agreements and you have questions on how this affects your
business, please contact Christine Malafi at 631-738-9100.
https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes
https://www.wsj.com/us-news/law/judge-tosses-ftc-ban-on-noncompete-agreements-ae517b48
https://www.cnn.com/2024/08/20/business/us-judge-strikes-down-noncompete-agreements/index.html
[1] Ryan LLC, et. al. v. Federal Trade Commission, (USDC Northern District 8/20/2024).