Trent Cotney, Partner, Adams and Reese LLP
As you likely remember, the Federal Trade Commission (FTC) voted in April to ban almost all noncompete
agreements. That ban was to take effect on September 4, 2024.
However, soon after the FTC issued that rule, Ryan LLC, a fax firm based in Dallas, sued to block the decision.
The Business Roundtable, the U.S. Chamber of Commerce and other business groups joined that suit.
In July, Judge Ada Brown, serving the U.S. District Court for the Northern District of Texas, reviewed the complaint and partially blocked the ban. The issue progressed and on August 20, 2024, Judge Brown made a final ruling, officially blocking the nationwide prohibition of non-compete agreements. This move prevented the
ban from going into effect in September.
It is estimated that 20 percent of U.S. workers – as many as 30 million individuals – have signed noncompete
clauses as part of their employment agreement. Noncompete stipulations can prevent employees from leaving their current employers and accepting jobs with competitors. They can also prevent workers from starting their own businesses. These restrictions impact a wide range of employees, from hourly workers to mid-management to executives.
In a 3-2 vote, the FTC put forth the ban on noncompete agreements. Had it gone into effect, it would have
prohibited all future employment-based agreements. In addition, it would have cancelled most of the noncompetes currently in place.
In its complaint, Ryan LLC argued that banning noncompetes would result in “serious and irreparable injuries” to its business, jeopardize confidential information and allow its competitors to poach valued and experienced employees. The company asserted that the FTC had overstepped its authority.
Judge Brown agreed that the FTC lacked the authority to impose such a ban and called the decision “arbitrary and capricious.”
The FTC does not agree with the judge’s decision and has vowed not to back down. Spokesperson Victoria Graham said, “We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation and depress wages.” Graham went on to say that the agency is considering a potential appeal and will continue to address noncompetes on a case-by-case basis.
Meanwhile, leadership from Ryan LLC supported the judge’s block. John Smith, Senior Vice President, Chief Legal Officer and General Counsel, stated, “This win preserves the validity of millions of employment contracts across the nation that facilitate trust between employers and employees, innovation through the protection of intellectual property and investment in the training of employees.”
Suzanne P. Clark, Chamber of Commerce President and CEO, said, “A sweeping prohibition of noncompete
agreements by the FTC was an unlawful extension of power that would have put American workers, businesses and our economy at a competitive disadvantage.” She noted that the judge’s block was “a significant win in the Chamber’s fight against government micromanagement of business decisions.”
This decision to block the noncompete ban will allow many companies to breathe a sigh of relief. However, it is important to remember that even with a national ban blocked, some states still prohibit noncompete clauses. In Florida, non-competes are valid but must be crafted carefully to ensure enforceability. In particular, employers should focus on the geographic scope, the duration and the limitation on type of work when asking an employee to sign a noncompete and seek legal counsel to assist in the process.
The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.
Trent Cotney is a Partner and Construction Team Leader at the law firm of Adams & Reese, LLP and FRSA General Counsel. For more information, you can contact him at trent.cotney@arlaw.com or by phone at
813-227-5501.
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