FTC Non-Compete Ban is No-Go: Businesses Can Stand Down

By Mark Zeidman and Todd Shadle, Employment Law Shareholders

Businesses that were planning to comply with the FTC’s controversial non-compete rule by rewriting their form employment and related agreements, and preparing a notice to current and former employees regarding the rule as required by the FTC, can put this aside for now. The non-compete rule will no longer take effect on September 4, 2024. A district court in Texas has issued a nationwide injunction against implementation of the rule.

Employers use non-compete agreements to protect their investments in employees, to protect investments in business development, and to protect their trade secrets. The decision is a relief to many employers, as they will get to retain this method of protecting their investment of time and money into training employees. The training includes exposure to the company’s way of doing business, marketing, data compilation, market strategy, product development and all the things that go into creating confidential, proprietary, and trade secret information. In Texas, a statute requires that such restrictions be related to another enforceable agreement, be supported by certain kinds of consideration, and be reasonable in scope, geographic area and duration. These are questions that often vex employers and employees.

The FTC, which issued the “Non-Compete Rule” regulation in April 2024, will likely appeal the U.S. District Court’s ruling to the Fifth Circuit.  The Fifth Circuit is not likely to support the FTC’s rule.  It is doubtful that this non-compete rule will ever become effective in its current form. However, many states and some localities are adopting restrictions or bans on such agreements, so employers need to be aware of these changes in every state and city in which they have employees.