A Texas federal court has blocked the Federal Trade Commission’s (FTC) final rule banning new non-compete agreements in the U.S.
While this news may disappoint some workers who are eager to be released from their non-competes, employees must understand that not all of these agreements can be enforced regardless of whether the FTC’s rule goes into effect.
Here’s what happened: just hours after the FTC voted 3-2 to ban new non-competes, global tax company Ryan LLC filed a lawsuit on April 23, 2024, seeking to block the rule. Several business groups joined the suit, including the U.S. Chambers of Commerce. On August 20, U.S. District Judge Ada E. Brown granted summary judgment in the Plaintiff’s favor, ruling that a) the FTC did not have statutory authority to issue substantive rules restricting unfair methods of competition, and b) the sweeping non-compete ban was an “arbitrary and capricious” overreach of the agency’s power. A copy of the decision can be found here.
Our firm recently published a blog post about several legal challenges to the FTC’s rule. While the national ban was previously scheduled to go into effect on September 4, the Texas court’s decision has curtailed it. As a result, the enforceability of non-compete agreements remains largely up to the states.
FTC spokesperson Victoria Graham said in a statement that the Commission is “strongly considering a potential appeal” of the decision and that it will continue to address non-competes through enforcement on a case-by-case basis.
What Employees Need to Know About Non-Competes
If you’ve signed a non-compete and have questions about what it means, the best step you can take is to contact a qualified employment attorney. We’re not exaggerating; the legal landscape is constantly shifting. If you’re looking to strike out on your own or work for a competitor, an employment attorney can review the language of your agreement and help you understand your options moving forward.
In addition, like all employment agreements, non-competes can sometimes be negotiated. If you are presented with a job offer that includes a non-compete clause, your best bet is to contact a qualified employment attorney before you sign it so you can fully understand your rights and discuss whether you can negotiate it.
Each state has different laws governing non-compete agreements. For employees who have signed a non-compete, your employer’s ability to enforce it requires a fact-specific analysis that considers several factors, including the language in the agreement, the state where you live, your position, your industry, whether you were laid off, and others.
Four states have fully banned non-competes: California, Oklahoma, North Dakota, and Minnesota. Other states have enacted restrictions on non-competes based on factors like industry, income, the duration of the non-compete, and other factors.
Courts will also generally not enforce non-competes that are unreasonable or overly broad. The definition of “unreasonable” varies by state, and courts may consider various factors such as the agreement’s geographic scope, duration, or the types of employers it covers.
For now, employees should generally continue to abide by the terms of their non-compete agreement and contact an attorney if they have any questions about what it means for their future employment.
Outten & Golden is one of the largest U.S. law firms dedicated to representing employees and individuals. Our attorneys are highly experienced in helping employees navigate their Employment Contracts, Partnerships and Non-Compete Agreements. If you need assistance with your non-compete, we encourage you to contact us right away.
