The Federal Trade Commission’s (FTC) Final Rule that largely banned non-compete agreements was scheduled to take effect on September 4th; however, last week a federal court in Texas found the rule unlawful. The Texas court’s final judgment invalidated the rule, directed the FTC not to enforce it, and prohibited the rule from taking effect nationwide. This decision is a relief to employers who have been in a holding pattern and uncertain how to proceed while courts decided whether the final rule would go into effect. Despite remaining uncertainties, employers in Maryland, Virginia, or other states without non-compete bans may continue to enter and enforce them, so long as they are carefully crafted to be no more restrictive than necessary.
The Texas court’s decision did not reference the Pennsylvania or Florida cases that have also issued rulings on the FTC’s non-compete ban. In the Pennsylvania case, the court made a preliminary finding that the FTC had legal authority to issue the final rule, and that the plaintiff could not establish irreparable harm if the FTC rule went into effect. By contrast, in the Florida case, the court granted a preliminary injunction against the rule.
The FTC will likely appeal the Texas court’s decision to the 5th Circuit. The Pennsylvania case, in which the district court reached the opposite conclusion at the preliminary injunction stage, could create a circuit split if upheld by the 3rd Circuit. Such a split would need to be resolved by the U.S. Supreme Court.
Aside from the federal rule in question, businesses must be aware of their states’ laws on non-compete agreements as they may already be unlawful in your area.
If you have questions about non-compete agreements, other restrictive covenants, employment contracts, severance/separation agreements, or other employment law issue, please call our office at 301-441-1400 to schedule an appointment with one of our attorneys. www.thatcherlaw.com
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