On August 21, 2024, the U. S. District Court for the Southern District of Texas blocked the FTC’s new rule banning non-compete agreements across the country. The sweeping ban has been mired in controversy and legal challenges since it was announced by the FTC last April.
The ruling follows a preliminary injunction previously imposed by the court in July in Ryan, LLC v. FTC. In that matter, the court found merit in plaintiff’s argument that the FTC overstepped its authority by trying to implement a blanket prohibition on non-compete agreements across all states and industries.
Here’s what the latest ruling means for employers:
Existing Non-Compete Agreements Are Not Invalidated by the Rule. At least for now, employers are not prohibited by the FTC’s rule from enforcing existing non-compete agreements.
Legal Uncertainty Continues. We anticipate the FTC will appeal the ruling, which will likely lead to further legal battles. Depending on the outcome of these, the status of non-compete agreements could continue to change.
Employee Notifications Are Not Needed. No employee notification regarding the validity of non-compete agreements is needed as a result of the FTC’s rule.
Stay Informed. Employers should stay on top of ongoing legal developments regarding the ban. Future court decisions could impact the enforceability of non-compete agreements.
Consult Legal Counsel. Employers should continue consulting with legal counsel who can advise on developments in the legal landscape that may require revisiting their non-compete agreements.
We’ll continue to monitor this evolving legal battle. Please reach out to us with any questions regarding the impact of this decision on your employee agreements.
A Partner at M&S, Josh advises clients on a range of proactive and responsive matters, helping them achieve their business goals while complying with federal and state privacy and other consumer protection laws.