A federal judge in Texas has permanently blocked the FTC’s proposed ban on noncompete agreements. On August 20, Judge Ada E. Brown of the U.S. District Court for the Northern District of Texas ruled that the FTC exceeded its authority, calling the rule "arbitrary and capricious."
As a result, the ban, which was set to take effect in September 2024, will not be enforced. Businesses can continue using noncompete agreements under current laws, though the FTC may still pursue case-by-case enforcement or appeal the ruling. Employers should stay informed as the legal situation continues to evolve.
The Federal Trade Commission (FTC) had proposed a rule declaring that noncompete agreements were an unfair form of competition. The rule, if enacted, would have prohibited employers from entering into noncompete agreements with any worker. This would have included existing noncompete agreements, which would have been nullified on the date the rule became enforceable.
One exception to this rule was for senior executives—those earning more than $151,164 per year in policy making positions. Existing noncompete clauses for these executives would have remained in place, but no new noncompetes could have been created moving forward.
The FTC estimated that the ban would have impacted about 18% of all U.S. workers, or approximately 30 million people. The proposed rule also projected that without noncompetes, there would be significant economic benefits, including increased wages, more new patents, and the creation of thousands of new businesses annually.
With the recent court ruling, businesses can continue to enforce noncompete agreements as they stand under current law. Judge Brown's decision prevents the FTC from implementing the proposed nationwide ban, but the agency has indicated that it may appeal the ruling or address noncompetes through case-by-case enforcement actions.
This means that while employers are not currently required to void existing noncompetes or halt the creation of new agreements, the regulatory landscape remains uncertain. The legal situation could still evolve depending on future court decisions or potential actions from the FTC.
Although the FTC's ban has been blocked, employers may still want to reconsider their reliance on noncompete agreements in light of ongoing legal challenges. Businesses should focus on competitive compensation packages, robust employee benefits, and fostering a positive workplace culture to retain top talent.
Additionally, businesses can protect their intellectual property through alternative agreements, such as non-disclosure agreements (NDAs), customer non-solicitation agreements, and employee non-solicitation agreements. However, it’s important to ensure that these agreements are not drafted in a way that would be viewed as a de facto noncompete, which could invite future scrutiny from regulatory bodies.
We recommend working with legal professionals to review and tailor your employment agreements, ensuring they remain compliant with current laws and best practices.
While the FTC’s proposed ban on noncompetes has been blocked, the legal environment surrounding noncompete agreements remains dynamic. Legal experts suggest that while businesses can continue to use noncompete clauses for now, they should prepare for potential changes down the road.
Although the FTC's proposed noncompete ban has been blocked, the regulatory environment remains in flux. The Orsus Group can help your business stay informed and prepared for whatever comes next. Contact us today!