Federal District Court Issues Injunction Prohibiting Enforcement of FTC Rule Banning Non-Competes

By Shiloh Theberge

What’s happening?
As most employers are aware, on May 7, 2024, the Federal Trade Commission (“FTC”) published a final rule prohibiting virtually all employee non-compete agreements. The rule was set to go into effect on September 4, 2024. However, on Monday, August 20, 2024, the U.S. District Court for the Northern District of Texas set aside the final rule and ordered that the rule not be enforced or take effect on a nationwide basis. The Court’s Order provided much-needed certainty for employers and follows the Court’s limited preliminary injunction, issued on July 3, 2024, temporarily staying enforcement of the final rule only as to the parties in the case. In setting aside the rule, the Court determined that the FTC had exceeded its rulemaking authority and that the rule itself was arbitrary and capricious because it was overbroad and not supported by the FTC’s cited studies. The Court also found that the FTC ignored the benefits of non-compete agreements. The Court’s judgment is immediately appealable to the U.S. Court of Appeals for the Fifth Circuit.  Nonetheless, it appears doubtful that the rule-at least in its current form-will take effect anytime soon.

What does this mean for your business?
While the FTC rule will likely not take effect, there continues to be heightened scrutiny of non-competes by the federal and state governments and courts. Given that, it is a good time for employers to take action, including ensuring that their agreements containing non-competes and other restrictive covenants are up to date to comply with state laws and are narrowly tailored to protect their business.

Bernstein Shur’s attorneys will provide further updates and can assist. For more information about the status of non-compete agreements, reach out to Shiloh Theberge, Shareholder and Chair of the Labor & Employment Practice Group, at stheberge@bernsteinshur.com.