Update: Texas Federal Court Halts Implementation of FTC Non-Compete Rule

On August 20, 2024, a federal judge in Texas struck down the Federal Trade Commission’s proposed nationwide ban against non-competes. Thus, the FTC’s proposed rule will not go into effect on September 4, 2024.

As we described in our earlier Disclosure Alert (link), the Non-Compete Rule would have required employers to, among other things, notify most of their employees in writing that their non-competes were no longer enforceable. It also would have required employers to stop requiring employees to sign non-competes except for certain senior executives.

Until yesterday, with the effective date looming, the Non-Compete Rule left employers and employees with a great deal of uncertainty. Earlier this Summer, the same Texas court temporarily enjoined enforcement of the Non-Compete Rule because it exceeded the FTC’s permissible authority, and that the Rule was arbitrary and capricious. However, the judge limited the ruling to the specific plaintiffs in the case. Several courts in other states came to similar conclusions, while others found the Rule enforceable.

These mixed court rulings nationwide left employers and employees in a precarious position with just weeks until the Non-Compete Rule was to take effect. Some decided to start taking preliminary efforts to start meeting the rule’s requirements, and others waited for the court system to sort out the inconsistent rulings. Because the Texas court stated it would make a final determination on the validity of the Rule before the end of August and had preliminarily found the Rule not enforceable, we believed it was prudent to wait for that decision.

Now, with the Texas court’s ruling, employers and employees have some certainty – at least temporarily. For now, employers are not required to notify current and former employees of the unenforceability of their non-competes, and future arrangements do not need to be modified to address the Non-Compete Rule’s other requirements.

Of course, this saga is expected to continue. The FTC almost certainly will appeal the Texas court’s decision. In the meantime, there is a nationwide determination that the Rule is not enforceable, and employers are not required to follow the Non-Compete Rule’s requirements. There remains no change to applicable Florida laws, and employers and employees must continue to comply in that regard, although employees will likely argue that Florida Courts should consider the court rulings that found the Non-Compete Rule enforceable.

If you have any further questions, please contact our attorneys for questions relating to this matter.

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