The Sophisticated Employer Blog

On Aug. 20, a U.S. District Court judge in Texas struck down the Federal Trade Commission’s (FTC) sweeping ban on non-compete agreements, which was scheduled to go into effect on Sept. 4.
 
The court’s decision in Ryan LLC v. Federal Trade Commission, -- F.Supp.3d --, Case No. 3:34-CV-00986-E (N.D. Tex. Aug. 20, 2024),turned on its determination that the FTC exceeded its authority when it adopted the rule. Expanding on that conclusion, the court explained that the non-compete rule was “arbitrary and capricious” because it was “unreasonably overbroad and without a reasonable explanation.”
 
The FTC expressed disappointment in the court’s decision and signaled that it will continue fighting to stop what it views as restrictions that limit economic liberty and depress workers’ wages. The U.S. Chamber of Commerce, meanwhile, praised the ruling as a win in what it considers a fight against the government’s micromanagement of business decisions.
 
Many legal observers expect the FTC to appeal the court’s decision to the U.S. Court of Appeals for the Fifth Circuit. While that process unfolds, employers will need to remain mindful of the non-compete laws governing the states where they operate. In Michigan, for example, employers may enter into non-compete agreements with employees as long as the restrictions fairly protect competitive business interests and are reasonable in terms of duration, geographical area and the type of employment or line of business.
 
Of course, when, whether and how to use non-compete agreements are matters companies should discuss with their employment attorneys. Plunkett Cooney’s team of employment lawyers routinely assist employers with non-compete issues and will continue monitoring the FTC’s attempt to impose broad restrictions while the case plays out on appeal.