This post was written by Rachel Felton and Neva Stotler.
A Texas federal court set aside the Federal Trade Commission’s (FTC) final rule that would have banned nearly all post-employment noncompete agreements. On August 20, 2024, the U.S. District for the Northern District of Texas ruled that the FTC lacked the authority to enforce such a sweeping ban and deemed the rule “arbitrary and capricious” due to its overbroad nature and insufficient justification.
The court’s decision halts the implementation of the FTC’s rule on a national basis, which would have taken effect on September 4, 2024. For now, employers can continue to enforce and enter into noncompete agreements, subject to state laws. However, this ruling does not resolve the ongoing legal uncertainty surrounding the ban, as the FTC may appeal the decision.
It is advisable for employers to use the reprieve to consider other types of employee retention incentives as well as enhance confidentiality and trade secret provisions in current agreements. These efforts will pay dividends regardless of how the Texas litigation is resolved. Employees who may inquire can be told that the implementation of the FTC rule is indefinitely postponed until the Texas court case is resolved.
While this decision is a significant victory for employers, the legal battle over noncompete clauses is far from over. Stay informed, consult legal experts, and be prepared to adapt to any future changes. Please contact Rachel Felton or Neva Stotler of the Metz Lewis employment law group to learn more.
