Update: US District Court Indicates that FTC Non-Compete Ban is Likely Unlawful

In late April 2024, the Federal Trade Commission (FTC), a US federal agency, enacted a rule prohibiting the use of virtually all non-compete agreements between employers and their workers, subject to very few narrow exceptions. The rule is scheduled to come into effect on 4 September 2024, after which it will be unlawful to enter into or to enforce any prohibited non-compete agreement in the US. If you missed our earlier blog on this far-reaching and controversial new rule, you can read it here.

Immediately upon publication of the rule, business groups filed lawsuits seeking to delay or bar enforcement and arguing that the FTC lacks the authority to pass such a sweeping rule. Two weeks ago, a court hearing one of these lawsuits issued a preliminary ruling that the businesses that had brought the lawsuit are likely to win against the FTC and that the rule is, likely, an unlawful use of FTC authority. Thus, the court prohibited the FTC from enforcing the rule against these particular businesses while the parties await a final ruling on the case, which is expected on or before 30 August 2024.

Technically, the court ruling changes little. The FTC rule remains scheduled to go into effect on 4 September 2024, and the court order is preliminary and only bars the FTC from enforcing the rule against the particular businesses that filed suit against it, leaving the FTC free to enforce the rule against other business. Practically, however, the court ruling is an early indication that the entire FTC rule will likely be declared unlawful by this court in August when the case completes, which could then result in a nationwide ban against FTC enforcement.

This recent ruling is from only one of several pending lawsuits. As each lawsuit reaches a decision point, there may be inconsistent rulings among various courts hearing legal challenges to the FTC rule. Although we cannot be certain, it seems likely that losing parties in any of these lawsuits may appeal to the appellate level and eventually to the US Supreme Court, meaning it could be many months – if not longer – before business have final clarity on the fate of the FTC rule. For now, businesses with US operations can continue to enter into and enforce non-compete agreements but should keep running lists of workers with such agreements so that required notices can be given in the event the FTC rule goes into effect in September. MBM Commercial will continue to monitor and provide updates on the enforcement timeline and legal challenges to the FTC non-compete rule.