On July 3, 2024, the U.S. District Court for the Northern District of Texas issued a decision enjoining the Federal Trade Commission (FTC) from enforcing its ban on employee non-compete agreements. This decision has critical implications for businesses that rely on non-compete clauses to protect their proprietary information, client relationships, and competitive positioning.

Background

In January 2024, the FTC announced a rule that broadly prohibits the use of non-compete agreements in employment contracts. The rule was aimed at promoting fair competition and employee mobility. However, the business community expressed concerns about the rule’s potential negative impact on the ability to safeguard trade secrets and maintain stable, skilled workforces.

The Court’s Decision

In a lawsuit brought by a coalition of business groups, the Northern District of Texas granted a preliminary injunction against the FTC’s rule. Significantly, the court found that the FTC may have exceeded its statutory authority in issuing the ban. The court’s decision temporarily halts the enforcement of the rule, but only with respect to the plaintiffs in that case. While the court stopped short of issuing a nationwide preliminary injunction against the FTC’s rule, the decision will most likely influence how other courts approach the issue, including at least one Pennsylvania-based federal court.

Next Steps

We are monitoring this evolving situation and will keep you updated on any further developments. In the meantime, our team is available to assist you in reviewing and updating your employment agreements to ensure compliance with current legal standards. If you have any questions or need assistance with your employment agreements, please do not hesitate to contact us.