On August 20, a federal judge in Texas struck down the Federal Trade Commission’s (FTC) rule that would have banned noncompete agreements nationwide. This ruling has significant implications for both employers and employees across the United States.  U.S. District Judge Ada Brown ruled that the FTC does not have the authority to implement a sweeping ban on noncompete agreements.  This decision temporarily halted the rule, which was set to take effect in September 2024.

Impact on Employers

The ruling means that noncompete agreements remain enforceable, but it’s essential to tread carefully.

Employers must ensure any noncompetes comply with state laws and are reasonable in scope and duration.

Navigating State-Specific Noncompete Rules

Noncompete agreements are regulated at the state level, resulting in varying degrees of enforceability. With Washington’s recent amendment effective June 6, 2024 that further restricts on the use of such provisions (see our blog Washington Further Limits the Use of Noncompetition and Nonsolicitation Provisions), and California essentially eliminating them (see California Senate Bill 699), it’s crucial for both employers and employees to be aware of the laws in their respective states

The Future of Noncompete Agreements

While the recent ruling halts the FTC’s proposed ban, we expect continued activity on noncompete restrictions including an appeal of the Texas ruling or further regulatory actions to limit the enforceability and scope of these agreements.

How will the recent noncompete ruling impact your business?

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Legal Disclaimer: This article contains general information and is not legal advice. Talk with counsel familiar with your unique business needs before taking or refraining from any action.