Federal District Court Blocks the FTC’s Noncompete Ban

On Aug. 20, 2024, the U.S. District Court for the Northern District of Texas issued an order blocking the Federal Trade Commission’s (FTC) noncompete ban, which had a scheduled effective date of Sept. 4, 2024. The court had previously put the noncompete ban on hold in this case (Ryan LLC v. FTC), but only for plaintiffs. The most recent ruling blocks the ban for all employers and prevents the ban from taking effect on Sept. 4, 2024, or thereafter.

Background

On May 7, 2024, the FTC published a final rule prohibiting employers from entering into or enforcing noncompete clauses with most employees. Subject to very limited exceptions, the final rule provided that:

• The use of noncompete clauses would be banned as of the effective date.
• Any existing noncompete clauses (other than those entered into with senior executives) would be invalidated.
• Employers would have to notify all employees (other than senior executives whose existing noncompete agreements would remain enforceable) that their existing noncompete agreements would not be enforced.

The enforceability of noncompete clauses is currently determined by state and local legislatures and courts. Instead, the FTC rule would have governed the enforceability of noncompete clauses at the federal level and superseded any less restrictive state laws or judicial interpretations.

Current Impact

In light of the Texas court’s ruling, employers will not need to take immediate steps to invalidate existing noncompetes, update agreements, or issue notices. Employers may also continue to rely on state-level guidance regarding the enforceability of noncompetes. However, the FTC will likely appeal the ruling, so employers should continue to monitor for updates in this case.

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