On August 20, 2024, the U.S. District Court for the Northern District of Texas found that the Federal Trade Commission (“FTC”) Final Rule prohibiting non-competition agreements with workers was unlawful. The Court held that the FTC does not have the authority to issue such a broad rule and ordered that the rule cannot be enforced. Most importantly, the Court directed that its ruling would apply nationwide, not just to the Plaintiffs in that case.
To catch up: On April 23, the FTC issued a final rule that, with limited exception, bans the use of non-compete provisions in employment-related agreements. That rule was set to take effect on September 4, 2024.
Since then, there have been numerous lawsuits around the country seeking to enjoin (i.e., preclude) the FTC from implementing or enforcing the non-compete rule. The Eastern District of Pennsylvania Court previously denied the plaintiffs’ request for an injunction in a similar challenge; just last week, the District Court for the Middle District of Florida held that the rule should be preliminarily enjoined.
Crucially, however, the Middle District of Florida Court (and, before yesterday, the Northern District of Texas), limited the injunction to just the plaintiffs in that case. In other words, while those Courts held that the Rule – at least temporarily – could not be enforced, they did so only with regard to the Plaintiffs in that lawsuit.
Yesterday’s decision in Texas – and its nationwide scope — changes everything. While the FTC can appeal the decision to the 5th Circuit Court of Appeals and, ultimately, to the Supreme Court, the Commission’s chances of success – with the current political leanings of both such courts – appear to be quite slim. It is safe to forecast that the FTC Rule, at least in its current form, will never take effect.
Where does that leave business owners? As the FTC Rule will not be going into effect, any notices to employees and former employees that businesses were planning to send on September 4 (in compliance with the Rule) can be shelved.
However, businesses must still consider whether they are impacted by any state law requirements. In Maryland, for example, state law already bans non-competes for employees making 150% of the minimum wage or less. Beginning on June 1, 2024, non-competes have been voided for veterinary professionals; beginning on July 1, 2025, Maryland law bans non-competes for healthcare professionals earning $350,000 or less. However, other states have other rules, and the most important state law rules will be those where your employees work – even if they are remote in another state.
We at RKW invite you to share any ongoing concerns you have with regard to non-competes – including from a holistic level. While the FTC Rule was struck down, it likely won’t be the last of such challenges. Should your current agreements be changed, regardless of yesterday’s ruling, so they are more compliant? Is there another way of achieving the goals of a non-competition agreement that won’t engender legal scrutiny? These are all questions RKW looks forward to helping you with.
