In April 2024, the Federal Trade Commission (FTC) issued a controversial new rule banning virtually all non-compete agreements in the employment setting.
This rule was scheduled to take effect on September 4, 2024. However, it faced legal challenges, culminating in a significant ruling on August 20, 2024, by U.S. District Judge Ada Brown in Texas. In the case of Ryan v. FTC, Judge Brown held that the FTC exceeded its statutory authority in issuing the ban, halting the rule’s implementation.
Following the ruling, the FTC filed a Notice of Appeal on October 18, 2024. During the pendency of this appeal, the FTC is barred from enforcing the rule. Consequently, businesses that utilize non-compete agreements can continue to do so, provided they comply with applicable state laws. Many state-specific regulations chip away at the scope of non-compete clauses, significantly impacting their enforceability.
Given the current legal landscape, employers who favor non-compete agreements should draft them narrowly and consider alternative solutions (like non-solicitation and non-disclosure covenants, and confidentiality agreements) to protect their trade secrets and business information.
These alternatives can provide robust protection while mitigating the risk of legal challenges associated with broad non-compete clauses.
