FTC’s Non-Compete Rule Struck Down Nationwide

By Isaac Linnartz, Zeb Anderson and Dani Dobosz

As we explained in a previous client alert, the Federal Trade Commission (“FTC”) published a proposed final rule that would ban nearly all worker non-competes. The rule was scheduled to go into effect on September 4, 2024. On August 20, 2024, however, a court struck down the rule on a nationwide basis, meaning that it will not go into effect unless that ruling is reversed on appeal.

Shortly after the FTC announced the proposed final rule, opponents filed several legal challenges seeking to invalidate the rule. On July 3, 2024, a federal judge in the Northern District of Texas issued a preliminary injunction prohibiting the FTC from implementing or enforcing its non-compete ban against the parties to the litigation, including Ryan, LLC, the U.S. Chamber of Commerce, Business Roundtable, the Texas Association of Business, and the Longview Chapter of Commerce. The court concluded these parties were likely to prevail on arguments that the FTC lacked statutory authority to promulgate the non-compete rule and that the non-compete rule is arbitrary and capricious in violation of the Administrative Procedure Act.

After the court issued the preliminary injunction, the plaintiffs moved for summary judgment and the FTC filed a cross-motion for summary judgment. On August 20, 2024, the court granted the plaintiffs’ motion for summary judgment, holding that the FTC exceeded its statutory authority in implementing the rule and that the rule was arbitrary and capricious. As a result, the court set aside the rule. Unlike the preliminary injunction, which had been limited to the parties to the lawsuit, this ruling applies nationwide. The FTC has signaled that it is considering appealing this ruling to the United States Court of Appeals for the Fifth Circuit, and the case ultimately could be appealed to  the United States Supreme Court. For now, and unless a higher court chooses to resurrect it, the FTC’s non-compete rule is dead.

What This Means for Employers

• The rule will not take effect on September 4, 2024.
• Employers need not send out the notices that the FTC rule would have required.
• Employers may continue to enforce valid non-competes.
• Employers may continue to enter into new non-competes with workers when permitted by applicable state law.

 Ongoing Recommendations

• Ensure that you have confidentiality agreements with each employee or contractor who has access to confidential information or trade secrets.
• Ensure that your non-compete, non-solicit, and confidentiality agreements and provisions are narrowly tailored and comply with applicable state law, which varies substantially from state to state.
• Take other measures to protect confidential information and trade secrets, including limiting physical and electronic access based on need-to-know, having confidentiality and security policies, and using on-boarding and off-boarding processes to train and remind workers about confidentiality, non-compete, non-solicit, and return-of-property obligations.

We will continue to monitor the litigation and will provide further updates if the rule is revived on appeal or changed through new agency action.

If you have questions related to this alert, please contact Zeb Anderson, Isaac Linnartz, or another lawyer within the firm’s Non-Compete and Trade Secrets or Workplace Law practice areas.