FTC’s ban on noncompete agreements halted . . . sort of

Earlier this summer, we alerted you to the Federal Trade Commission’s (FTC) approval of a final rule implementing a nationwide ban on noncompete clauses in new employment agreements (see “FTC announces nationwide ban on noncompetes in the workplace” in the June 2024 issue). The rule goes one step further and requires employers to inform current and former employees that existing agreements will no longer be enforceable. Current noncompete agreements with senior executives are exceptions to the new FTC rule. Now, a July 3 order by the U.S. District Court for the Northern District of Texas calls into question whether the noncompete ban goes into effect nationwide as scheduled on September 4, 2024.

Texas lawsuit

In April, global tax preparation service and software provider Ryan LLC, the U. S. Chamber of Commerce, and other employer groups filed a lawsuit in Dallas federal court challenging the FTC’s noncompete rule. On July 3, the court issued an order staying (halting) the enforceability of the rule only for Ryan LLC and the other named groups. No other employers nationwide were covered by the stay.

Interestingly, the court said it intended to rule on the “ultimate merits” of the challenge to the FTC’s noncompete ban on or before August 30, 2024—that’s just five days before the rule goes into effect.

What happens next?