The FTC’s Noncompete Rule Hangs in the Balance
By: Paul Capua

Since you have an interest in the exhilarating subject of employment noncompete agreements, I trust you now know that the FTC’s comprehensive ban on them (https://www.ftc.gov/legal-library/browse/rules/noncompete-rule) has been enjoined by at least two federal courts, one in Texas (Ryan LLC v. Federal Trade Commission) and the other in Florida (Properties of the Villages, Inc. v. Federal Trade Commission). As a result, the FTC’s rule banning noncompete agreements will not take effect on September 4, 2024, as planned. The FTC will likely appeal these rulings, and the issue may find its way to the United States Supreme Court.

The reasons the courts enjoined the FTC rule from taking effect are similar to the reasons the US Supreme Court struck down the COVID-era US Department of Labor’s (OSHA) emergency rule that required large employers to require workers be COVID vaccinated or tested weekly (https://www.bbc.com/news/world-us-canada-59989476) — i.e., the FTC exceeded its statutory authority under the Administrative Procedures Act in promulgating the rule.

To understand the gravity of the FTC’s noncompete rule, consider that noncompete agreements have been permitted by every state for almost 200 years, with only California, North Dakota, and Oklahoma the exception. The other forty-seven states allow them to a greater or lesser extent necessary to protect the legitimate interests of companies. Perhaps no contemporary change in the employment setting as drastic as the FTC’s noncompete rule has occurred since the landmark Civil Rights Act of 1964 including its amendments in 1991.

Companies and employees should monitor the FTC cases carefully as they work their way through the appellate courts. Even though the FTC’s noncompete rule will not take effect in the immediate future, companies should revisit their noncompete agreements and ensure they are no broader than necessary to protect their interests. Even if the FTC rule is permanently enjoined, courts may be inclined to view noncompete agreements more skeptically in the future. Companies and employees should explore other ways to balance their competing interests, such as through confidentiality, work-for-hire, and non-solicitation clauses.

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If you are an employer considering having an employee sign a non-compete agreement or if your employer is asking you to sign one, schedule a consultation with Capua Law to review the agreement.