New Rule BLOCKED!
FTC Ban on Non-Compete Agreements
As you know from our Employment Law update last month, the Federal Trade Commission (”FTC”) finalized a rule to ban non-competition agreements nationwide, with limited exceptions (“Rule”). The Rule’s fundamental prohibitions were: (1) employers cannot form new non-compete agreements with employees; (2) employers cannot enforce existing non-compete agreements unless an exception applies and (3) employers must explicitly notify current and former employees that such agreements are unenforceable. The Rule also required employers to notify current and former employees who may be subject to non-compete clauses that those clauses are unenforceable, before the effective date. https://bit.ly/4c532Lo
The Rule was set to take effect on September 4, 2024. However, on Tuesday, August 20 a Texas-based federal court in Ryan LLC v. FTC struck down the Rule, finding that the FTC exceeded its statutory authority in promulgating the Rule, and finding that the Rule is “unreasonably overbroad without a reasonable explanation.” The court found that the Rule’s “one-size-fits-all” approach “fails to consider the positive benefits of non-compete agreements” and “disregards the substantial body of evidence supporting these agreements.” The court’s ruling does not affect the FTC’s authority to address non-competition agreements in case-by-case enforcement actions, but the Rule itself is effectively blocked.
However, the saga is not yet over. The FTC has stated through a spokesperson that it is considering a potential appeal of the court’s ruling, and the White House, through its press secretary, has stated that it still supports a nationwide ban on non-competition agreements. While these ongoing legal challenges will likely prevent the Rule from taking effect on September 4th as originally anticipated, employers should keep abreast of this issue, so they can reassess their workplace policies and provide any necessary notifications in a timely manner, should that become necessary. Further, this court ruling has no impact on existing Colorado law limiting non-competes expect in certain circumstances. Our prior employment law update on Colorado non-compete agreements is available at https://bit.ly/4dUTdRG.
For any questions or assistance in addressing your agreements, please reach out to Ireland Stapleton employment law attorney Michelle Ferguson, Lidiana Rios or Hannah Le.
Disclaimer: What is written here is for general information only and should not be taken as legal advice. If legal advice is needed, please consult an attorney.