Navigating the Uncertain Future of Non-Compete Agreements

The recent Federal Trade Commission (FTC) decision banning non-compete agreements for most employees has created significant uncertainty for businesses. This blog post provides a clear overview of the situation, including the potential impact and next steps for employers. 

What Changed: Did the FTC Ban Non-Compete Agreements? 

On April 23, 2024, the FTC announced a controversial new decision that bans non-competition agreements between nearly all employers and employees, prohibits the enforcement of current non-competition agreements, and requires employers to provide notice to current and former employees that their non-compete clauses are not valid.  

The FTC’s rule is currently being challenged in court. It’s important to note that the rule may not go into effect or could be modified. The final outcome could take months or even years to resolve.

What Is a Non-Compete Agreement?

The FTC rule defines non-competition agreements as any term or condition of employment that prohibits an employee from seeking or accepting employment with another business or operating a competing business.  The FTC Rule does not ban other forms of restrictive covenants, such as non-solicitation agreements or confidentiality agreements, as long as those agreements do not prohibit someone from getting a job. This is likely a case-by-case basis of the impact of any particular provision and is important to review with counsel.  

When Does the Non-Compete Ban Go Into Effect?

After this announcement, the standard procedure is to publish the final rule in the Judicial Register. The FTC published the rule on May 7, 2024 and it goes into effect on September 4, 2024.

Expected Challenges to the FTC Non-Compete Ban

One day after the FTC’s announcement, the U.S. Chamber of Commerce announced its decision to sue the FTC on the grounds that the commission exceeded its authority. 

Companies are also expected to come forward to challenge the legality and fairness of the ban. Within days of the announcement, multiple lawsuits were filed against the FTC. The first of these was filed by a Texas tax preparation company just a day after the Final Vote announcement. It is possible a federal court may strike down the rule or put it on hold and an appeals court may later issue a ruling impacting the rule. Courts could also issue contradictory rulings in different appellate circuits and the appellate process could last into 2025. Moreover, the FTC’s focus may change if a new administration is in office.  

What Employers Should Do Now 

Given the uncertainty over whether the rule will go into effect, employers need to strike the right balance between being prepared and waiting on the Courts. Employers should take stock of which employees are covered by non-competition covenants and work with counsel to formulate alternative plans to protect client relationships via non-solicitation and confidentiality covenants. Employers should also ascertain if any existing non-solicitation or non-recruitment provisions comply with the new rule. Additionally, Employers should review and strengthen the steps they take to protect trade secrets. 

If the ban goes into effect, employers may continue to enforce existing non-compete agreements only with former senior executives.

Employers should stay informed of the current state of the legal battle over the FTC ban to avoid finding themselves in legal trouble. Most employers would be best advised to request that their legal team monitor the ongoing situation and inform them of any changes. 

Get Help From Our Restrictive Covenant Attorneys

Alonso & Wirth represents and advises businesses and individuals across the country regarding restrictive covenants and is monitoring developments regarding the new FTC rule.

If your business needs assistance navigating the implications of the new FTC rule for your agreements, the experienced team at Alonso & Wirth can help. 

Contact us today to schedule a confidential consultation with one of our highly experienced non-compete agreement attorneys. We look forward to hearing from you.

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