Urgent – Texas District Court Blocks FTC Ban on Non-Competition Agreements
On August 20, 2024, a federal judge upheld a challenge to the Federal Trade Commission’s (“FTC”) ban on non-competition agreements. This decision has blocked the rule from taking effect on September 4, 2024. With this, employers may continue to draft and utilize non-competition agreements that are narrowly drafted to protect company interests and trade secrets.
What was the non-competition ban?
On April 23, 2024, the FTC announced a new rule banning non-competition agreements. The FTC’s rule had stated that as of September 4, 2024, employers would no longer be able to enter into non‑competition agreements with their workers or enforce most existing non-competition provisions. Employers would also have had to provide explicit notice to both current and former employees that their non-competition provisions are no longer enforceable.
Who challenged the ban?
Ryan, LLC (“Ryan”), a global tax services, software, and technology firm, filed a lawsuit hours after the FTC released its rule banning non-competition agreements. The U.S. Chamber of Commerce also joined the case as a plaintiff, along with Business Roundtable and two (2) Texas business groups. Ryan and the other plaintiffs asserted that the FTC lacks constitutional and statutory authority to promulgate such a broad rule.
What did the District Court find?
Judge Ada Brown of U.S. District Court for the Northern District of Texas agreed with Ryan and ruled that the FTC lacked authority to issue rules related to unfair methods of competition, including the non-competition rule in question. Victoria Graham, spokeswoman for the FTC, said that the agency was disappointed by Judge Brown’s decision and is seriously considering an appeal.
What does this mean for employers?
Though employers will no longer have to prepare for a federal ban on non-competition agreements, it is still important that their non-competition agreements comply with state law. Many states have restrictions or outright bans on non-competition agreements, and each law is slightly different.
Here at Gravel & Shea, we are closely monitoring the potential appeal and will provide more information as it becomes available. We are also able to draft and review non-competition agreements for compliance in different states.
Please contact Heather Hammond (hhammond@gravelshea.com) at
Gravel & Shea PC if you have questions or would like assistance.
