FTC Non-Compete Ban Updates

FTC Non-Compete Ban: Current Status and Implications for Businesses

Presented September, 2024 by Kim, Lahey & Killough attorney Casey Martens

The Federal Trade Commission’s (FTC) recent attempt to ban most non-compete clauses in employer-employee contracts has encountered significant legal challenges, creating uncertainty in the business landscape.

On April 23, 2024, the FTC finalized a rule banning most non-compete clauses, originally set to take effect on September 4, 2024. However, legal challenges have substantially altered this timeline.

In July 2024, a federal court in Pennsylvania upheld the FTC’s authority to issue the ban. Conversely, on August 20, 2024, a Texas court granted a nationwide injunction against the rule’s enforcement, ruling that the FTC had exceeded its statutory authority and that the rule was arbitrary and capricious.

As a result of the Texas decision, the FTC is currently unable to enforce the rule. This provides a temporary reprieve for employers, suspending the need to comply with the rule’s requirements. However, businesses should remain vigilant, as the legal landscape continues to evolve.

While the FTC may lose this particular battle, the war on non-competes is far from over – the debate over non-compete agreements persists. State legislatures continue to introduce laws limiting the scope of non-competes, creating a complex regulatory environment, particularly for businesses with multi-state operations.

Given the uncertain future of non-compete agreements, businesses should consider alternative methods to protect their interests, such as:

1. Non-disclosure agreements (NDAs) to safeguard confidential information and trade secrets
2. Non-solicitation agreements to prevent former employees from poaching customers or staff
3. Ownership and assignment of inventions (OAI) agreements for intellectual property protection
4. Robust trade secret policies and internal controls
5. Other intellectual property strategies involving copyrights, patents, and trademarks

When implementing these alternatives, it is crucial to ensure they are narrowly drawn and tailored to protect legitimate business interests without overreaching.

As the legal battle over non-compete agreements continues, businesses are advised to stay informed about the latest developments and be prepared to adapt their practices accordingly. Consulting with legal counsel to review and update employment agreements in light of these changes is highly recommended.

Casey Martens is an attorney in the firm’s Brevard, NC office. Licensed in North Carolina, South Carolina and Georgia, Casey represents employers and workers in employment matters, as well as business and intellectual property disputes.