Non-Compete Agreements - a Go or a No?

If you’re reading this, you’ve probably heard rumblings of the drama currently surrounding non-compete agreements. If not, the 30,000 foot view is this: in April, the Federal Trade Commission voted to finalize and promulgate a rule banning nearly all non-compete agreements between employers and their employees, even retroactively. The rule was slated to go into effect on September 4, 2024, but as you can imagine, the rule was swiftly challenged in court. So, what now? Can you enforce non-compete clauses? Should you be removing them from your employment contracts??

As of late August, the FTC cannot enforce the ban against any employer. The court held that the FTC exceeded its statutory authority in implementing the rule and that the rule itself is arbitrary and capricious (read: unreasonable, without regard for facts, and made without apparent motive). See Ryan, LLC Case No. 24-cv-986, Northern District of Texas.?

The FTC has the right to appeal to the U.S. Court of Appeals for the Fifth Circuit, and they likely will. But, with the end of “Chevron deference” (a post on that coming soon), the FTC’s legal arguments in support of its authority to promulgate the rule are not nearly as powerful or persuasive.?

So, unless the FTC is successful in an appeal, it is permanently enjoined from enforcing the ban on non-competes and it is back to status quo. Regardless, however, the FTC’s actions have put non-compete agreements in the spotlight, and private plaintiffs are already attempting to use antitrust law to challenge non-competes and seek damages. See Order, Goforth , No. 23-cv-3167, Western District of Missouri.?

For most employees, non-competes are extraordinarily difficult to enforce and aren’t the proper mechanism to protect employers. With the right compilation of stand-alone agreements, however, employers can attain similar protections that are much more likely to be enforced. The agreements must be drafted appropriately and tailored to the specific business and positions. We can help with that.