Federal Court Injunction Bars FTC’s Non-Compete Agreement Ban

A federal court in Texas yesterday issued a permanent nationwide injunction barring the Federal Trade Commission’s Non-Compete Agreement Ban from going into effect.  As a practical matter, and barring an unlikely reversal from the 5th Circuit, this means the proposed nationwide ban on non-compete agreements is virtually dead for now, though employers will still need to comply with the patchwork on state laws that may (or may not) bar such non-compete agreements. 

As you may recall, in April, the FTC issued a rule (to go into effect next month) that would have banned employers from using most non-compete agreements with their employees.  In addition, the rule would have required employers to send out notices to all employees that had non-compete agreements that their existing non-competes were not going to be enforced.

The decision yesterday – which was expected after a preliminary ruling earlier this summer – effectively puts a stop to the rule.  In doing so, the court ruled that the FTC had exceeded its rule-making authority in establishing the ban.    

For employers, the injunction may turn out to be a mixed blessing.  Some employers may rejoice at the notion that their existing restrictive covenants with employers may continue to be enforced and that the administrative burden of having to comply with the proposed rule will be alleviated for now. Others, however, may lament the fact that they will still have to comply with various state laws – all of which differ in this scope.  The FTC rule would have meant employers could follow (for the most part) a single rule. 

Again, it’s possible that this decision may be challenged further, but given the Supreme Court’s recent ruling limiting the authority of executive agencies to issue such rules, it seems unlikely for now that an appeal would be successful.  

Thus, employers should continue to monitor developments but should stop any plans to implement the FTC’s ban on non-compete agreements.  However, employers should continue to monitor and comply with the various state laws that have been passed in recent years.  It’s quite probable that various state legislatures will pick this back up in their next sessions since the federal rule is dead for now.  This includes states like Connecticut that have considered such measures in the last few sessions.