On April 23, 2024, the Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation. A noncompete is an agreement where one party promises not to engage in conduct that would increase competition for the other party for a specific period of time. For former employees, noncompetes generally prohibit them from entering into an employment contract at a competing company. The FTC ban on noncompetes would prohibit companies from legally stopping former employers from working for competitors.

However, on August 20, United States District Court for the Northern District of Texas issued an order stopping the FTC from enforcing the rule on September 4. The district court found that the FTC exceeded its authority in implementing the Non-Compete Rule and the Non-Compete Rule is arbitrary and capricious.

Thus, employers do not need to comply with the FTC Final Rule banning noncompetes. However, employers must still be aware of state laws governing noncompetes. While some states still find noncomepetes enforceable such as Texas and Florida, other states like California have determined non-compete agreements in the employment context are generally void (Cal. Bus. and Prof. Code §§ 16600, 16601, and 16602.5). Furthermore, the court’s ruling does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions. Which means, if state law permits, noncompetition agreements are allowed so long as the scope of the restrictions are reasonable. Generally, the restrictions being reviewed for reasonableness are duration, geographic scope, and activities. Thus, limiting your noncompete to a shorter time frame, minimizing the area to local competition, and narrowly tailoring the type of work prohibited by the noncompete, will increase the likelihood the agreement is enforceable.

While employers can disregard the FTC Ban at the moment, the FTC has stated it is considering an appeal. If the FTC decides to appeal and wins employers should look to strengthen their non-disclosure agreements (NDAs) and carefully review trade secret laws, both provide employers with well-established means to protect proprietary and other sensitive information.