On August 20, 2024, a Texas federal court struck down the Federal Trade Commission’s (FTC) proposed nationwide ban on non-compete agreements, which was set to take effect on September 4, 2024. In a 27-page opinion, the court ruled that the FTC exceeded its authority by attempting to enforce such a ban, labeling the rule as “arbitrary and capricious” due to its overly broad and unsupported scope.
The FTC may decide to appeal, but until this time, employers across the U.S. are not required to comply with the FTC’s Final Rule. This means that non-compete agreements can continue to be used, provided they comply with any other applicable federal or state laws.
Next Steps
Employers should be cautious about using non-agreements given that each state has different regulations regarding their use. For instance, California generally prohibits them, while Florida enforces them under certain conditions. Employers should ensure that they are aware of applicable laws related to the use and enforceability of said agreements and that they are designed to be consistent with state-specific legal requirements.
As a best practice and to minimize the risk of legal challenges, non-compete agreements should be narrowly tailored to protect legitimate business interests such as trade secrets, confidential information, or customer relationships in terms of duration, geographic scope, and the specific activities they restrict.
It is recommended that employers who wish to maintain non-competes or other types of trade secrets or confidentiality agreements work with their legal counsel to draft, review, and update them as needed.
