As has been widely reported, the Hon. Ada E. Brown issued a ruling on Aug. 20, 2024, setting aside the Federal Trade Commission's (FTC) controversial ban of nearly all employee noncompetition agreements nationwide. Pursuant to the court's order, the FTC's rule "shall not be enforced or otherwise take effect on its effective of September 4, 2024, or thereafter."
That said, the battle over the noncompete ban and the FTC's approach to noncompetes is not necessarily over. The FTC's spokesperson reportedly has stated that the agency is "seriously considering a potential appeal." Moreover, the spokesperson noted that the decision "does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions."
So, what are the practical takeaways?
For now, employers that utilize noncompetition restrictions with employees can stop preparations for compliance with the noncompete ban. As of the writing of this article, whether there will be an appeal remains to be seen. But even if there is an appeal, the chances of success for the FTC seem questionable at best, in light of recent SCOTUS precedent shining a brighter light on potential overreach by federal agencies in how they interpret and enforce the statutes they are charged with enforcing.
At the same time, the FTC indicates its intention to interpret and enforce federal antitrust laws in a manner that could undermine particularly overbroad noncompete agreements.
Whatever the FTC's next steps are, for some time now, there has been a noticeable trend of state legislatures limiting the use of noncompetes. Thus, employers should continue to be cognizant of the laws of the states where they have employees and should regularly review and modify their restrictive covenant agreements to ensure compliance with state law. Indeed, four states' laws (California, Minnesota, Oklahoma and South Dakota) have already banned noncompetes and at least nine other states have statutory income thresholds for use of noncompetes. Moreover, in states where noncompetes are generally allowed, the law still typically requires that the agreements be narrowly tailored to protected recognized legitimate interests of the employer (such as trade secrets or customer relationships), such that the agreements are designed to protect against unfair competition and not just any competition.
In summary, for now at least, there is no national noncompete ban. But employers should continue to evaluate their use of restrictive covenants in light of what may continue to be a shifting legal environment.
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