Preliminary Injunction Issued for FTC Non-Compete Rule

What happened?

On July 3, 2024, a U.S. Federal Court in Texas granted a preliminary injunction and stay of the Federal Trade Commission’s (FTC) rule banning non-compete agreements for the named plaintiffs. The court decided that the FTC overstepped its rule making authority by banning non-compete agreements. Additionally, the Court will rule on the merits of the FTC’s action on or before August 30, 2024. This injunction comes after the latest SCOTUS ruling, which will provide federal agencies with less power in rule making.

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 can businesses do?

As the ruling only applies to the plaintiffs in the suit, businesses should continue to prepare for the new rule set to take effect on September 4th. Additionally, continue to track updates in our free Newsletter.

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.

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