August 20, 2024
Business owners can breathe a sigh of relief. Earlier today, a United States District Judge set aside the FTC proposed rule which would have banned Non-Competes nationwide beginning September 4, 2024.
On January 19, 2023, the FTC proposed the Non-Compete Rule which would prohibit employers from entering into non-compete clauses with workers starting September 4, 2024, and require employers to rescind any existing non-compete clauses with current and former employees spanning back two years.
On August 20, 2024, The Court concluded that the FTC lacks the statutory authority to promulgate the Non-Compete Rule, and that the Rule is “arbitrary and capricious”. Thus, the FTC’s promulgation of the Rule is unlawful agency action. See 5 U.S.C. §706(2). As such, the Court set aside the FTC’s rule as required under 706(2), an action which has nationwide effect.
The Rule shall not be enforced or otherwise take effect as of its effective date of September 4, 2024, or thereafter. See 16 C.F.R. §910.1-.6.
What Should Employers Do Now?
Employers are free to continue requiring their workers enter into non-competes, and enforcing non-competes for previous employees. While this proposed ban is off the table for now, one can only speculate non-competes are going to be a hot topic for quite some time. Employers should take this time to review their non-compete clauses for enforceability and ensure they comply with state standards. In addition, it’s still a good time to review other provisions of employment agreements and company handbooks that have direct effects on confidential and proprietary information, trade secrets, non-solicitation of customers, clients and employees, and the like.
