Key Takeaways
- The Non-Compete Rule is set to take effect on September 4, 2024. On July 3, a US district court in Texas, however, preliminarily enjoined the Federal Trade Commission (the “FTC”) from implementing or enforcing the Non-Compete Rule against the specific plaintiffs who challenged the Rule in that case. The court held that these challengers are likely to succeed on the merits because the FTC lacks the statutory authority to promulgate the non-compete rule and because the rule’s overbreadth renders it “arbitrary and capricious.”
- The court intends to issue a final ruling on the merits on or before August 30, 2024. Given the court’s preliminary ruling, it is likely to rule in plaintiffs’ favor again. The open issue is whether the court will prevent the FTC from enforcing the Rule in any context or will limit the final relief to the specific plaintiffs. Either order will be subject to appeal to the Court of Appeals for the Fifth Circuit (likely an unfavorable forum for the FTC) and ultimately to the Supreme Court of the United States. Whether and when the rule might take effect thus remains an open question.
- Use of non-compete agreements continues to carry risks. The FTC remains free to target non-competes but will have to adjudicate the merits of individual non-competes on a case-by-case basis. State law also remains a source of limitations.
- Employers should evaluate existing and future non-competes and ask whether: (1) a non-compete agreement is necessary to protect legitimate business interests; and (2) if so, the agreement is sufficiently narrow in scope, time and geography. Employers also should continue monitoring compliance with the changing landscape of applicable state laws, including laws that prohibit non-compete restrictions on low-wage or non-executive earners.
Continue Reading UPDATE: Slow Down, You Move Too Fast: The FTC Non-Compete Ban May Not Last
