Employer Notice Requirement Suspended for Now As Courts Poised for Circuit Split

As you may know, the Federal Trade Commission (FTC) voted in April to finalize a rule that aimed to ban non-compete agreements between nearly all employers and all workers prospectively and retroactively. The rule was set to go into effect as of September 4, 2024, and sought to not only prohibit employers from entering into new non-compete agreements, but also bar the enforcement of such agreements executed prior to the rule’s effective date. The FTC also would have required employers to provide notice of unenforceability to current and former employees whose non-compete agreements were no longer enforceable before the rule took effect.

Employers generally expressed their opposition to the pending rule, arguing that the use of non-competes is critical to protect trade secrets and business relationships. Several lawsuits were filed in various jurisdictions – Texas, Florida, and Pennsylvania – soon after the final rule was announced. On August 20, 2024, U.S. District Judge Ada Brown in Dallas ruled in favor of the employer-plaintiffs and issued a nationwide injunction effectively barring the FTC rule from taking effect. Judge Brown’s order stated, “the Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule… [the rule] is hereby set aside and shall not be enforced or otherwise take effect on September 4, 2024…” This effectively ended the FTC’s rule (at least for now) and worried employers can breathe easy.

However, it is important to note that the lawsuits filed in Pennsylvania and Florida are still pending. The Pennsylvania court previously denied the plaintiff’s request for a nationwide injunction and rejected the argument that the rule is an improper exercise of the FTC’s authority. This potential circuit split may ultimately need to be resolved by the Supreme Court. Additionally, the FTC still has the opportunity to appeal the Texas court’s decision.

For now, employers need not send any notices as of this moment, but that may change depending on the outcome of currently pending litigation. Bear in mind that even if the rule remains blocked, the FTC still obviously has the authority to address the enforceability of non-compete agreements on a case-by-case basis. Therefore, it is imperative that employers ensure their non-competes are compliant with applicable regulations to increase the likelihood such agreements can successfully be enforced. If you have any concerns about the enforceability of your current non-compete agreements, we would be happy to assist.