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FTC Ban on Non-Compete Agreements Struck Down by Federal Court

By Renee Mielnicki, Esquire

As a refresher, the Federal Trade Commission (“FTC”) issued a final rule banning the use of non-compete agreements effective September 4, 2024. The ban was far reaching meaning it applied nationwide with very limited exceptions.

Due to the major implications the ban would have on thousands of companies throughout the U.S., several lawsuits were filed in federal court challenging the legality of the rule. At least three federal judges considered legal challenges to the rule but stopped short of issuing a nationwide block. 

However, on August 20, 2024, United States District Judge Ada Brown for the U.S. District Court for the Northern District of Texas issued a nationwide injunction blocking the FTC’s rule from taking effect.   Since this injunction is nationwide, the FTC cannot enforce the rule in the U.S and the ban will not take effect on September 4th. 

So, what does this mean for your company?

Since the injunction blocks the rule from taking effect nationwide, employers can continue to use and enforce their non-compete agreements.  Of course, employers will still need to follow applicable state law regarding non-competes. Some states are somewhat restrictive of non-compete agreements.  Other states like Colorado, Illinois, and Maryland, have income-based restrictions on noncompete agreements.  Therefore, it’s very important to know what is enforceable and what is not enforceable in each state in which a business operates.

The FTC rule had required employers to send notice to employees by September 4, 2024, informing them of the ban and stating that their non-competes were no longer enforceable.  Since the rule has been blocked, employers do not need to take this step by that deadline.

The FTC is considering an appeal of this decision to the U.S. Fifth Circuit Court of Appeals.  If an appeal is filed, this would not be the end of court challenges to this rule.  For now, employers can take ease and continue to use non-competes.  If there is an appeal and any resulting changes, we will be sure to update you.

In the meantime, if you are an employer with questions about any HR questions, contact the HR helpline at 855-873-0374 or email us at . We will be happy to help!

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