Back in April, the Federal Trade Commission (“FTC”) announced a Final Rule that banned virtually all non-compete agreements, creating upheaval for employers who rely on them to protect their business interests. The ban, which was to go into effect on September 4, 2024, has been halted by a federal court in Texas, with nationwide impact. The court ruled that the FTC lacked the statutory authority to impose such a ban and that the ban was arbitrary and capricious. Accordingly, the court set aside the Final Rule and declared that it shall not take effect on September 4, 2024 or thereafter, throughout the country.
Is this the end of the legal debate around this Final Rule? Not necessarily. A federal court in Pennsylvania recently held that the rule was lawful, so there may be appeals that could reach the U.S. Supreme Court. However, for now, employers throughout the nation need not eliminate their non-compete agreements.
Importantly, the Final Rule required employers to provide notice by September 4th to current and former workers with non-compete agreements informing them that the non-compete agreements would not, and could not, be enforced. Employers should not send these notices, as the requirement to do so has been voided. Employers that have already sent notices should consult with counsel to determine whether and how to rescind them.
Employers should stay tuned for further developments in this area. If the FTC appeals the decision halting the Final Rule’s implementation, it is possible an appellate court would resurrect it. We will continue to provide updates on decisions affecting employers’ obligations in this regard.
Our team of labor and employment attorneys can assist employers in using restrictive covenant agreements in accordance with current legal requirements and ensuring compliance with all applicable labor and employment laws.