Court ruling puts FTC noncompete ban on life support

On July 3, 2024, the U.S. District Court for the Northern District of Texas issued a preliminary court order halting enforcement of the Federal Trade Commission’s (FTC) final rule prohibiting noncompete agreements for most workers. The preliminary order applies only to the parties in that case—it isn’t a nationwide order against the rule’s enforcement and doesn’t apply to any other businesses. However, the decision signals that the rule likely will be found unlawful when the court issues a decision on the merits on or before August 30, 2024.

Background

On April 23, the FTC issued a final rule prohibiting employers subject to the commission’s jurisdiction from entering into noncompete agreements with any worker, regardless of title or income level, unless the agreement is part of a bona fide sale of a person’s ownership interest in a business. The rule also would make existing noncompete agreements unenforceable for all employees except “senior executives,” as defined by the rule.

Upon the rule’s current effective date—September 4, 2024—employers are required to provide notice to applicable workers that their noncompete provisions are no longer enforceable. Other provisions, such as nonsolicitation and confidentiality agreements, could remain enforceable so long as they don’t have the ultimate effect of preventing competition.

Lawsuit filed