FTC Non-Compete Ban: Where It Stands
So many clients have been asking me whether they need to contact current employees under non-competes, and whether they should stop having new hires sign them.
My answer changed in the space of a week. In summary: you don't need to do anything right now. Here's why.
What the FTC's Non-Compete Ban Was
On April 23, 2024, the Federal Trade Commission announced its Final Non-Compete Clause Rule. It was supposed to:
Prohibit employers from using non-compete agreements with workers, both employees and independent contractors
Allow exceptions for senior executives — those earning at least $151,164 annually in policy-making positions — and in connection with the bona fide sale of a business
Take effect September 4, 2024
Straightforward, right? Not so fast.
The Plot Twist
A Texas federal court threw a wrench in the works.
A legal challenge in Ryan LLC v. Federal Trade Commission successfully halted the rule. On August 20, 2024, the court blocked it from taking effect. It will not be implemented as planned, and employers are not required to comply.
The court's reasoning: the FTC exceeded its statutory authority, lacked the power to create substantive rules this way, and the rule was "arbitrary and capricious" — legal speak for "not well thought out."
What That Means for You
Non-compete agreements continue to be governed by applicable state law. You're relieved of complying with the FTC rule, which is good news for employers.
But don't break out the champagne. This isn't the end of the story.
What to Do Now
Review your restrictive covenants, especially non-compete clauses.
Ensure compliance with your state's laws. Non-competes are already banned in California, North Dakota, Oklahoma, and Minnesota.
Watch for pending state-level bans in Illinois, Kentucky, Massachusetts, and Michigan.
Stay informed as this develops.
The landscape of restrictive covenants is still shifting. Stay vigilant, stay informed, and above all stay compliant with your state laws.
Update
Since this was written, the story resolved. The FTC dropped its appeals of the decisions striking down the rule, acceded to vacatur, and formally removed the Non-Compete Clause Rule from the federal regulations. The agency has shifted to case-by-case enforcement against specific non-compete practices rather than a blanket federal ban.
The practical takeaway is unchanged and now permanent: your non-competes are governed by state law. That is where your review should focus.
Need help navigating these waters? Grab a free 30-minute session with one of our HR experts — and if we think your issue needs an employment attorney, we'll gladly make a referral.