Federal Judge Partially Blocks the FTC’s Ban on Non-Competes

The controversial non-compete ban issued by the Federal Trade Commission (“FTC”) on April 23, 2024 has been preliminarily blocked by a Texas judge–but only for the plaintiffs in that specific case.  It has not been blocked for all employers, although that is still a possibility in the coming weeks.

The FTC ban is scheduled to go into effect on September 4, 2024.  A number of business groups including the U.S. Chamber of Commerce quickly filed lawsuits in April objecting to the rule and seeking an injunction to block it from being implemented.

On July 3, 2024, U.S. District Judge Ada Brown (a 2019 President Trump appointee) in the Northern District of Texas issued an opinion criticizing the broad scope of the FTC’s proposed rule. The Court found that the FTC exceeded its authority by attempting to regulate what it believes is unfair competition by employers in their use of non-competes. Judge Brown’s decision stopped the rule from going into effect for Ryan LLC and the U.S. Chamber of Commerce (but not its members), and she indicated she will issue an opinion on the merits by August 30, 2024.  That more comprehensive ruling could block the rule on a national basis for all employers.  There are also other federal court challenges pending that could result in a national ban before September 4.

What does this mean for existing non-compete agreements that employers have with their workers?  For now, non-competes are still allowed and enforceable to the extent they are compliant with state law.   Also, employers can still enforce other protective agreements, including non-solicitation agreements – whereby the employee agrees not to solicit the business of customers or to encourage employees to leave.  Those covenants remain in full force are not impacted by the FTC rule, even if it becomes effective in the future.

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