Federal Court Blocks FTC's Ban on Non-Compete Agreements: Legal Battle Looms

Non-compete agreements are a common contractual practice in the employment arena that can block employees from accepting a new job or starting a new business. It is estimated that nearly one in five Americans is subject to a non-compete. On May 7, 2024, the Federal Trade Commission published a rule generally banning non-compete agreements between employers and employees. The rule was set to take effect on September 4, 2024.  However, on August 20, 2024, a judge in the Northern District of Texas found that the FTC's new non-compete rule was unlawful and should be set aside.  The Texas court's reasoning was that the FTC had exceeded its authority in issuing the rule, and that the rule is arbitrary and capricious.  

The FTC plans an appeal, which will be heard by the Fifth Circuit Court of Appeals.  An ensuing appeal to the United States Supreme Court is likely.  In the meantime, non-competes are still lawful, although there continue to be numerous limits on the lawfulness of their scope and tenure.