by Lisa Brennan
Earlier this year, we wrote about the end of the non-competition agreement boldly declaring that “the non-compete is dead”. We made this assertion based on a new rule issued by the Federal Trade Commission (“FTC”). The FTC rule would have wide-reaching implications, affecting all non-compete agreements going forward, as well as retroactively.
But not so fast! The non-compete agreement may in fact have zombie-like qualities. Just as businesses were preparing to implement a September 4, 2024 deadline of the new FTC rule largely banning non-competition agreements in most scenarios, a Federal Court in Texas has partially blocked the FTC’s new rule ordering an injunction. (Here’s a link if you’d like to read the court’s opinion) The judge reasoned that the FTC lacked the “substantive rule-making authority” needed with respect to unfair methods of competition, and that the plaintiffs challenging the new rule were “likely to succeed on the merits” of their challenge. So what does this mean for you?
The court’s decision injects a level of uncertainty for businesses across the board. Should my business continue to plan for a rule that may never come to fruition? Should I sit back and see what happens? The most likely answer is somewhere in the middle. While we never know with certainty the outcome of a given court case, it is always a good idea to plan for the future with the information we have available for us today.
Even if the rule does not go into effect in its current state, it is worth while to review all your existing non-competition agreements with your employees, both past and present. Who is restricted? Does it fall within any of the exceptions (e.g. senior executives, restricting employees that are currently employed by you)? Determine whether additional agreements may be more appropriate for your needs, for example, a confidentiality agreement or a non-solicitation agreement.
While the non-competition agreement may be here to stay for the time being, the FTC has shown a spotlight on the often-fraught topic. If you have questions about what this ruling means for your businesses’ non-competition agreements, please contact the knowledgeable attorneys at Way Law today!