Thought Leadership / News
July 5, 2024 
 Thought Leadership
Independence Day for Non-Competes? Court Fireworks Delay FTC Rule

Gray Reed Legal Alert

Back in April, the FTC made an election year splash by announcing a final rule putting the future of non-compete agreements in serious doubt.  Short of an injunction by a federal court, most non-compete agreements would become unenforceable later this year.

Many business owners have been apoplectic since.  Many employees have been straining at their chains of perceived bondage.  Both have been waiting for clarity, which we now have – at least temporarily.

On Wednesday, Texas Federal District Court Judge Ada Brown issued a preliminary injunction preventing the FTC rule from becoming effective for the Plaintiffs until the lawsuit concerning the FTC’s authority to make such a rule is resolved.

This outcome is not terribly surprising, given the stakes.  If the FTC rule were allowed to become effective and then, some months or years later, overruled by a finding the FTC overstepped its authority, employers and employees would find themselves in a strange form of limbo with no real guidance about what happens next.

Put in the form of a hypothetical – can you imagine an employee, who is released from a non-compete under an effective FTC rule, leaves their job for a competitor and, a year into their former non-compete period, finds the FTC’s rule overturned?  Would the non-compete be effective again?  Would they get credit for the time they were freed from it? These and a hundred more questions would arise with no real guidance for employers, employees or even courts about how to address it.

Judge Brown promised a ruling on the merits at the end of August before the rule would become effective based on its prior publication date by the FTC.  We may expect an additional injunction at that time with broader scope.  Gray Reed's Labor & Employment team will issue an update at that time.