The Federal Trade Commission’s Upcoming Nationwide Ban on Non-Compete Restrictive Covenants Has Been Halted by a Federal Judge

In early May 2024, the Federal Trade Commission (FTC) published a U.S. nationwide final rule (the “Rule”) that sought to prohibit businesses from entering into or enforcing agreements with current or former employees or individual independent contractors that would either prohibit such workers from working for the business’ competitor(s), starting a competing business, or otherwise acting in competition in the U.S. against the restricting business.  The Rule did not disturb bona fide confidentiality agreements, but would have prohibited non-solicitation, non-interference, and non-disparagement agreements that had the effect of restricting competition, similar to a non-compete.  The Rule was scheduled to take effect on September 4, 2024, and would have additionally required businesses to give written notification to affected individuals with existing prohibited non-compete restrictive covenants that those non-competes are void and no longer enforceable in the U.S.

The Rule has undergone multiple federal court challenges from the business sector, and, on August 20, 2024, a Texas federal court struck down the FTC’s attempt to ban non-competes as an overreach of the FTC’s authority from Congress and an arbitrary exercise of what power Congress has given the FTC.  The federal government is considering an appeal of the Texas federal court’s decision.  While the Rule’s final outcome remains to be decided, it is clear that the blocked Rule will not take effect on September 4, 2024 or any time in the near future.