FTC’s Non-Compete Ban Struck Down

The Federal Trade Commission’s ban on non-compete agreements has been struck down by a Federal Judge in Texas. The rule was scheduled to take effect on September 4, 2024. The Federal Judge upheld a challenge to the FTC’s rule by stating, “The FTC lacks substantive rulemaking authority with respect to unfair methods of competition.”  The FTC indicated that they may appeal the ruling.

What was the rule?

The FTC announced on April 23, 2024, a new rule banning non-compete agreements, which was set to go into effect on September 4, 2024. The new rule both bans new non-competes for all employees after the effective date of the rule and invalidates existing non-competes for all employees but senior executives. A ‘senior executive’ is defined as an employee in a policy-making position earning over $151,164 annually.

The final rule also could invalidate non-solicitation agreements if the non-solicitation is so broad or “unreasonable” that it prevents a worker from seeking or accepting employment from a different employer. It also could implicate non-disclosure agreements that present the same issues for employers if it prevents employees from working versus legitimately protecting a Company and its investments. Finally, agreements requiring employees to repay training costs that are not reasonably related to the costs of the training received are also under fire with the new rule.

What does this mean for employers?

Employers should continue to follow federal, local, and state law regarding the legality of non-compete or non-solicitation agreements.

How can myHRcounsel help?

Continue to follow us as we track a potential appeal from the FTC. For further guidance, clients can receive expert advice from our attorneys about the legality of non-compete agreements and alternative ways to legally protect your company to withstand the ultimate legal decisions on non-competes with our affordable ASK HR subscription.