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Published By Robert W. Small

The Federal Trade Commission (FTC) Final Rule, which was to take effect on September 4, 2024, would have banned virtually all non-compete agreements for U.S. workers.  The Rule was challenged in several federal courts, and on August 20, 2024, a federal court in Texas blocked enforcement of the Rule nationwide.

In that case, Ryan LLC v. Federal Trade Commission, the Court granted the Plaintiffs’ Motion for Summary Judgment, concluding that the “FTC exceeded its statutory authority in implementing the Rule, and the Rule is arbitrary and capricious.” The FTC stated that it intends to appeal the decision to the Fifth Circuit Court of Appeals and may also seek an emergency stay of the order.   Note of interest that on July 23, 2024, in ATS Tree Services v. FTC, the District Court for the Eastern District of Pennsylvania refused to enjoin the Rule holding that the agency had not exceeded its rule making authority; as did one other federal district. As no federal appeals court has yet heard an appeal on this issue, consideration by the United States Supreme Court is unlikely in the near term.  

What Does This Mean for Employers and Employees?

For employers, the FTC currently may not enforce the Rule anywhere in the United States and: 

  • Employers are not required to notify employees or former employees that their non-compete agreements are not enforceable as they would have had to do if the Rule went into effect.
  • Given the widespread publicity the Rule received, employers should consider sending notices reminding employees and former employees of any non-compete obligations and informing them that the Rule has been enjoined.
  • State laws and court rulings still apply to the enforceability of non-compete agreements and Employers need to take those into account when enforcing or threatening to enforce such agreements.
  • Employers should contemplate how current and future non-compete provisions should be drafted if the Rule, or others like it, is eventually enacted.

For employees, it is status quo for all non-compete provisions and:

  • Employees should assume that the obligations under their non-compete agreements are valid and enforceable (subject to any other state or federal prohibition/restriction).
  • State laws and court rulings still apply to the enforceability of non-compete agreements, so employees may still be subject to comply with their non-compete and be subject to employers enforcing such agreements or threatening to do so.
  • Do not assume that a court will not enforce the non-compete because of the Rule or position of the FTC.
  • Seek legal advice if considering not complying with a non-compete.

If you have questions or wish additional information, please contact Robert W. Small at rsmall@regerlaw.com or call 215-495-6541 or contact any attorney in the Reger Rizzo & Darnall Employment or Corporate & Business Services Practice Groups.