Texas Judge Blocks FTC's Ban on Non-Compete Clauses
August 20, 2024
Authors: Ron Reynolds & Jill Miller
On August 20, 2024, a federal district judge in Texas issued a ruling blocking implementation of the Federal Trade Commission’s (FTC) Rule banning non-compete agreements on a nationwide basis. This decision comes just a few months after the FTC announced the Rule containing sweeping changes aimed at eliminating these agreements. In a carefully reasoned and strongly-worded decision, the court concluded that the FTC lacked statutory authority to promulgate the Rule, and further held that the Rule was arbitrary and capricious: “Thus, the FTC’s promulgation of the Rule is an unlawful agency action.”.
When the FTC initially announced the ban, we provided guidance on how to navigate the impending changes. Given this decision, we want to update our recommendations and ensure you remain compliant while protecting your business interests.
What this ruling means for Michigan businesses:
- Continued Use of Non-Compete Clauses: Under the ruling, non-compete clauses remain legally enforceable, provided they comply with existing state laws
- Potential for Appeal: An appeal by the FTC is expected. An appeal court can decide to maintain the nationwide injunction against the Rule pending an appeal or delay it pending an appeal. Hilger Hammond will continue to monitor the litigation and any appeal to keep its client base informed.
How you can prepare:
1. Identify Existing Agreements and Relevant Job Positions:
Prepare an inventory of the current non-compete agreements you have in use. Also, identify job positions that interact with confidential company and customer information for consideration of whether a non-compete agreement may be appropriate.
2. Review Current Agreements:
Reassess your existing non-compete agreements to ensure they are robust and compliant with state-specific regulations. Michigan law requires that noncompete agreements be reasonable in scope, duration and geographical limitation. Michigan courts have rendered numerous decisions interpreting these factors.
3. Limit Proprietary Information Access:
Implement procedures to restrict access to trade secrets, confidential and customer information only to those employees who genuinely need it.
How Hilger Hammond Can Help:
While this ruling provides a temporary reprieve, the legal landscape around non-compete agreements remains dynamic. We recommend staying vigilant and prepared for any further changes.
Should you have any questions or need assistance updating your employee agreements, please do not hesitate to reach out to us. Our team of experienced attorneys is here to provide the guidance you need during this time of uncertainty.
