August 20, 2024
Court Sets Aside FTC’s Non-Compete Rule
If you have been following this story, you know the Federal Trade Commission’s rule effectively banning non-compete agreements was set to take effect September 4, 2024. Not now.
Today, a U.S. District Court for the Northern District of Texas held, “…the Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024 or thereafter.” This followed at least two previous court rulings this month: one finding in favor of the FTC’s rule, the other not.
Why? The court found the FTC lacked the authority to issue this broad rule. Its regulatory authority is more of a “housekeeping statute,” authorizing the FTC to issue rules of agency organization, procedure or practice, but not substantive rules. Congress also historically prescribes sanctions for violations of the agency’s rules—confirming that those rules create substantive obligations for regulated parties. The FTC lacks such authority, suggesting it cannot create substantive obligations.
What now? Many states still bar, restrict, or limit employers’ ability to control employees’ concurrent or subsequent employment through the use of non-competes as well as other agreements such as no-solicitation, no-rehire, and non-disclosure. Talk to your company’s legal counsel for guidance on your next steps.
