Update: The FTC’s Ban on Non-Compete Agreements – What CEOs & Business Leaders Need to Do Now

This article provides an update on the FTC’s April 2024 ruling on Non-Compete Agreements, which you can read more about here. 

 On August 20, 2024, a federal judge in Texas blocked a rule issued by the Federal Trade Commission (FTC) banning noncompete agreements.  

Overview & Background 

In late April, the Federal Trade Commission (FTC) announced its Final Non-Compete Clause Rule (“Final Rule”). Originally set to take effect on September 4, the final rule would have banned the use of existing and new non-compete agreements for most employees of for-profit companies. Based on FTC estimates, this rule would have impacted 18% of the American workforce, or around 30 million workers.  

However, on August 20, a ruling by U.S. District Judge Ada Brown in the Northern District of Texas blocked the FTC’s rule. The Judge concluded that the “FTC lacks statutory authority to promulgate the Non-Compete Rule and that the Rule is arbitrary and capricious,” and therefore an unlawful action. This ruling has nationwide effect and will prevent the FTC’s ban from going into effect on September 4 for all employers. 

While the decision does not prevent the FTC from addressing non-compete agreements on a “case-by-case” basis, it does prevent the FTC from enforcing its rule. The FTC could still appeal the decision over the next 30 days.  

Key Actions & Considerations for CEOs and Business Leaders 

Given the recent ruling, CEOs and Business leaders no longer must prepare their organizations for the implementation of a non-compete ban. While many leaders may have begun determining who would have been impacted, drafting compliant employment agreements, and developing communication plans, they are no longer necessary. However, given the current spotlight on non-competes, we suggest considering the following: 

• Stay Updated: Leaders should return to the status quo, but remain vigilant. The FTC may choose to appeal the decision over the next 30 days, but a successful appeal is an unlikely outcome. Thus, remaining up-to-date can prevent any scramble to implement the FTC’s future rules.  

• Ensure State-law Compliance: At this point, some leaders may have made substantial progress on employment agreements and non-compete reviews. While complying with the FTC ruling is no longer necessary, now is still a good opportunity to address any concerns that were revealed during the review process to ensure compliance with state law. State laws may have been amended since employment agreements were originally prepared.  The new national attention to non-compete agreements may give rise to greater scrutiny in future disputes and corporate leaders will want to ensure that their contracts are enforceable.   

• Employee Communication: Crafting a relevant follow-up communication may be advisable, but highly dependent on what has already been communicated with workers. If leaders have already shared the news about the initial ruling with their teams, a follow-up communication may prove beneficial. However, if employees have not yet been made aware of the ruling, there is no necessary communication at this point.  

While this new development in employment law has effectively gone on the back burner for now, it is critical for leadership teams to continue to monitor developments as they unfold. Executives should remain focused on leveraging effective communication to provide clarity for employees, utilizing external resources when needed, and remain flexible to any ongoing changes with the law as next steps are determined by the FTC.