In a previous article, we discussed a rule banning non-compete agreements in the United States that the Federal Trade Commission (FTC) issued earlier this year. After the issuance of the FTC non-compete rule, several parties came forward to challenge its legality, arguing that the FTC had overstepped its regulatory authority. Recently, a federal judge in Texas issued a nationwide injunction against the FTC non-compete rule. This injunction effectively halted the rule’s implementation just before it was set to take effect at the beginning of September. If left to stand, this decision could have far-reaching implications for employees nationwide, including New Jersey employees.
Background on the Non-Compete Rule
In April 2024, the FTC published a rule that sought to ban new non-competes with all employees, including senior executives. The FTC declared non-competes an unfair method of competition and made it illegal for employees to enter into such agreements with employees. For senior executives, any non-competes that were already in place would remain in force, but employers could not enter into new non-competes with senior executives.
The FTC introduced the non-compete rule in an effort to protect workers from unfair agreements that inhibit them from starting their businesses or working for competitors after leaving their current jobs. Implementing this rule would provide more freedom to workers looking for better opportunities without fear of legal repercussions from former employers.
However, the FTC non-compete rule was met with objections from several parties. A recent ruling in the Northern District of Texas temporarily blocked the rule.
Federal Court Blocks FTC’s Non-Compete Rule
On August 20, 2024, a judge in Texas, Judge Ada Brown, granted a motion for summary judgment in the case of Ryan LLC v. FTC. The judge found the non-compete rule illegal and issued a nationwide injunction, thus preventing the FTC from enforcing the rule against any employer nationwide. According to Judge Brown, the FTC lacks the authority to enact such substantive rules. The judge found that the FTC’s non-compete rule was “arbitrary and capricious” under the APA since the FTC did not consider narrower alternatives or compile an adequate record to support the rule. In July, the court issued a preliminary injunction. At the time, that injunction only blocked the non-compete rule with respect to enforcement against the named plaintiff and other parties that intervened in the action. After the August ruling, the court clarified that the ruling would have a nationwide impact.
However, the case is not yet over, as the FTC is expected to appeal the decision. Such an appeal would be heard by the U.S. Court of Appeals for the Fifth Circuit and probably the U.S. Supreme Court. That said, because of this decision, employers are not currently required to comply with the FTC non-compete rule and can hold off on preparations to comply with it.
Employers and employees should continue monitoring the progress of this case. We at The Trabosh Law Firm will remain alert and keep you updated on any new developments.
Contact a New Jersey Employment Lawyer
If you have questions or need help with an employment law-related matter, contact a qualified New Jersey employment lawyer at the Trabosh Law Firm.