A Final Rule adopted by the Federal Trade Commission (FTC) in April was set to render most existing and future non-competition agreements void and unenforceable as of September 4, 2024. Now, however, the fate of the FTC's non-compete ban and the fates of tens of millions of workers and employers who have entered into such agreements have been called into question.
On August 20, 2024, just weeks before the ban was to take effect, Trump-appointed U.S. District Judge Ada Brown of the U.S. District Court for the Northern District of Texas issued a nationwide injunction blocking the Final Rule's implementation. Brown previously issued a narrower injunction that only barred enforcement of the rule as to the plaintiffs in the case. In both instances, Brown ruled that the FTC had exceeded its authority with the ban.
"The Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC's promulgation of the Rule is an unlawful agency action," Brown wrote. "(The rule) is hereby SET ASIDE and shall not be enforced or otherwise take effect on September 4th, 2024, or thereafter."
The injunction stands in contrast to a ruling from a federal court in Pennsylvania earlier this summer that found the FTC properly issued the Final Rule. The FTC has indicated that it is evaluating whether to appeal Brown's ruling and has made clear that it will continue its efforts to challenge individual non-competes that it believes violate existing law.
"We are seriously considering a potential appeal, and today's decision does not prevent the FTC from addressing non-competes through case-by-case enforcement actions," FTC spokesperson Victoria Graham wrote in a statement.
The immediate takeaway for employers is that, for now at least, existing non-compete agreements remain valid and enforceable, employers are free to enter into new non-competes (subject to applicable state laws and judicial interpretations), and employers need not provide employees with the notice about their rights and the status of existing non-competes as required by the Final Rule.
Tydings will continue to monitor developments involving the FTC's non-compete ban and provide updates accordingly. Meanwhile, if you have any questions or concerns about the impact of this ruling on your business, please contact Melissa Jones at Tydings.