Attorney
On August 20, 2024, the United States District Court for the Northern District of Texas struck down the Federal Trade Commission’s rule banning non-compete agreements.[1] This decision applies nationwide, and as of now, employers are free to create and enforce non-competes without restriction by this rule.
The FTC rule made most non-competes unenforceable and mandated the rescission of all existing non-competes, except for executive non-competes, which were allowed to remain in place. Had the ruling not been issued, the order was set to take effect on September 4, 2024. The FTC based this ban on its “power to prevent unfair methods of competition” under Section 5 of the Federal Trade Commission Act.[2] Acting under this authority, the FTC promulgated a rule, which stated in part:
(1) Workers other than senior executives. With respect to a worker other than a senior executive, it is an unfair method of competition for a person:
(i) To enter into or attempt to enter into a non-compete clause;
(ii) To enforce or attempt to enforce a non-compete clause; or
(iii) To represent that the worker is subject to a non-compete clause.
(2) Senior executives. With respect to a senior executive, it is an unfair method of competition for a person:
(i) To enter into or attempt to enter into a non-compete clause;
(ii) To enforce or attempt to enforce a non-compete clause entered into after the effective date; or
(iii) To represent that the senior executive is subject to a non-compete clause, where the non-compete clause was entered into after the effective date.
16 C.F.R. § 910.1.
This rule would essentially end nearly all non-competes currently in effect and stop employers from having their employees sign new ones going forward. The court held that this rule exceeded the statutory authority granted to the FTC by Congress and was arbitrary and capricious under the standards of the Administrative Procedure Act. The court reasoned that a complete ban was “unreasonably overbroad without a reasonable explanation.” The decision leaves open the possibility of addressing specific, harmful non-competes through narrower regulations.
As this rule is being litigated in other courts, it is highly likely that this decision will be appealed. While an appeal is likely, there are good reasons to believe that the Fifth Circuit Court of Appeals will affirm this decision, and that the Supreme Court may do the same, given the bent of the court against excessive deference to administrative agencies. Assuming the ruling is not overturned, employers will have another tool to protect their interests. Non-competes, as well as other employment agreements such as non-disclosure and non-solicitation agreements can be a powerful tool to protect an employer’s business interest. These are valuable tools for employers in states that allow them. Florida permits non-competes as long as they are reasonable.
If you or your business wish to enforce a non-compete agreement, or if you believe you are subject to an unreasonable non-compete, Boatman Ricci is here to advise and assist you. The attorneys at Boatman Ricci can help you protect your rights and property. Contact us today to schedule an initial consultation at (239) 330-1494.
[1]. Ryan LLC v. Federal Trade Commission, Docket No. 3:24-cv-00986 2024 WL 3879954 (N.D. Tex. Aug. 20, 2024).
[2]. U.S.C. § 45(a)(2).
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