COURT OVERTURNS FTC’S BAN ON NON-COMPETE CLAUSES. SEPT. 4 DEADLINE FOR NOTIFYING EMPLOYEES IS CANCELLED

On August 20, the US District Court for the Northern District of Texas overturned the FTC’s recently-adopted ban on the use of non-compete restrictions in employee contracts.  The rule was scheduled to go into effect on September 4, which would have required employers to proactively notify their employees as of that date that most existing non-compete clauses would not be enforced, and no new non-compete arrangements could be imposed. The Court set aside the Non-Compete Rule in all respects, finding it to be arbitrary and capricious, and beyond the authority of the FTC (especially since the ban applied to all non-compete clauses with no attempt to identify only those restrictions that were harmful to competition and did not serve a legitimate need). Consequently, the Court made it clear that “the Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024 or thereafter.”  The FTC may appeal this decision to the US Court of Appeals, so employers will need to stay abreast of any further rulings in this matter.  But it is clear that employers do not have to send their employees a non-compete notice on September 4 (unless a higher court issues a stay of the District Court’s decision, which is unlikely since postponing the Sept. 4 deadline simply maintains the status quo).

Please consult with employment counsel if you have any questions.