The FTC’s ban on noncompetes faces challenges

The FTC’s ban on noncompetes is facing legal challenges – the outcome will significantly impact employers nationwide.

In April 2024, the Federal Trade Commission issued a final rule banning most noncompetes nationwide. The rule is set to become effective on September 4, 2024.

Numerous lawsuits challenging the rule have been filed. On July 3, 2024, a Texas court held that the FTC likely did not have authority to issue the regulation, instituting a preliminary injunction only for the plaintiffs of that specific case.

However, on July 23, a Pennsylvania court held the opposite: the FTC did have the authority to ban noncompetes. As September 4th approaches, the fate of the rule remains in question.

What to pay attention to from an HR perspective:

  • Non-disclosure and non-solicitation agreements remain enforceable and appropriate regardless of the noncompete ban’s status.
  • Employers are still allowed to require agreements that ban trade secret disclosure.
  • Check the laws in your jurisdiction.  States such as California, Oklahoma, and North Dakota have instituted their own noncompete bans. Other states restrict their use.

At this juncture, employers should:

  • Review existing employment agreements for explicit and de facto noncompete agreements.
  • Create a plan for revising agreements as needed and for providing required notice to covered employees.
  • Continue to monitor the numerous legal challenges facing this rule, but be prepared for it to go into effect on September 4, 2024.
Need more information?

To learn more about the noncompete clause rule, and how to prepare for upcoming changes, contact our Human Resources Consulting team.

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