By Noah Jordan - August 24th 2024
A Final Rule of the Federal Trade Commission (FTC) set to
go into effect on September 4, 2024 banning non-compete agreements for most
employees was struck down on August 20 by a Federal District Court in
Texas. The ruling enjoins the FTC from
implementing the Final Rule and leaves its future in doubt. Previous challenges to the Rule had been
unsuccessful, and a Federal District Court in Pennsylvania had upheld it in
response to an identical challenge, seeming to clear its path for
implementation. The FTC announced that
it was considering whether to appeal the ruling to the Fifth Circuit Court of
Appeals.
Under the Final Rule, non-compete agreements for employees, including existing such agreements, would have been unenforceable, except for those applying to “senior executives,” defined as employees in “policy-making positions” earning more than $151,164 annually. Employers had been directed to inform employees currently subject to non-compete agreements that they no longer would be held to such restrictions once the new Rule went into effect. The FTC had estimated that prohibiting non-compete agreements would result in the creation of an additional 8,500 businesses per year, increase average wages by $524 per year, and lower health care costs by up to $194 billion over a decade.
The August 20 ruling leaves more questions than answers regarding the future status of non-compete agreements. For now, the FTC merely has indicated that it is considering its appeal options and that it maintains the right to challenge non-compete agreements on a case-by-case basis.