Update on the FTC’s Non-Compete Ban

In April 2024, the Federal Trade Commission (FTC) issued a Rule banning noncompete agreements for almost all employees. This ban is set to take effect on September 4, 2024, but on July 3, 2024 a Federal Judge in Texas ordered a preliminary injunction that blocks the ban, as to the plaintiffs who brought the lawsuit, until the court can decide the ultimate merits of the lawsuit, which the court stated it will do on or before August 30, 2024.

The lawsuit was brought by several Texas businesses that claim that the FTC violated the Federal Administrative Procedure Act (APA) by exceeding its authority and violated the Constitution by making the ban arbitrary and capricious. There is a similar federal case pending in Pennsylvania.

While at this time the injunction applies only to the businesses which sued the FTC in Texas, the injunction is a significant initial win for businesses challenging the rule. From the ruling given by the Judge on July 3rd, it appears likely that this ban will be deemed outside of the FTC’s authority and unconstitutional. If the Judge finds the ban to be outside of the authority of the FTC and/or unconstitutional, a broader, permanent injunction, or a decision that sets aside the Rule could result, in which case application could be nationwide.

Although the injunction does not specifically apply to Minnesota businesses at this time, it does affect how employers should prepare. The ban, if found to be within the FTC’s authority and constitutional, will require that employers give notice that all noncompete clauses are no longer enforceable. Employers should be doing an inventory of all employees who have a noncompete clause/agreement in place but wait to give this notice. We expect that the Texas court will give its final ruling on or before August 30th. We will be monitoring this case, and the other cases related to this issue and will continue to provide updates.

If you have questions about this new rule or any other employment law related questions, please contact one of the Blethen Berens employment law attorneys.