The Federal Trade Commission (FTC) issued a final rule finding non-compete clauses in connection with employment relationships to be in violation of Section 5 of the FTC Act and bans employers from entering into or enforcing non-compete clauses nationwide. The FTC issued this rule on April 23, 2024, and then published it in the Federal Register on May 7, 2024.  Barring legal further, actions, the final rule is scheduled to go into effect September 4, 2024.  This new rule is not applicable in any court considering the enforcement of an existing non-compete agreement which is filed before the rule goes into effect.

This new rule applies to private sector employers unless specifically exempted. Exemptions are provided for business including banks, savings and loan associations, Federal credit unions, common carriers air carriers, entities covered by the Packers and Stockyards Act of 1921, and most non-profit organizations.

The FTC has provided some carve outs where non-compete clauses may still be enforceable in accordance with state law. These carve outs provide an exception for enforcement of a non-compete agreement included as a term in the bona fide sale of a business.  There is also a narrow except for the continued enforcement of existing non-compete clauses with certain senior executives which are entered into prior to the September 4, 2024 enforcement date, although entering into new ones will be prohibited after that point. A senior executive, as defined by the FTC’s final rule, is a worker who is in a policy-making position and earned at least $151,164.00 the preceding year.

There is still considerable debate and litigation regarding the authority of the FTC to enforce its new ruling. Two of the five FTC commissioners along with the US Chamber of Commerce do not believe that the FTC has the power to make all non-compete clauses nationwide unenforceable. There are also three court cases challenging FTC’s authority regarding this rule. The plaintiff in one case pending in the North District of Texas argues that the rule contravenes the FTC Act, violates the Constitution, and is arbitrary, capricious, and unlawful. This case should hopefully provide clearer guidance on the future effectiveness of non-competes in Texas.

The attorneys at Waldron & Schneider, PLLC are well versed in employment matters, including the enforcement of confidentiality, non-solicitation, and non-compete agreements. If your business has questions regarding any of these matters and the best options to protect your valuable work product, please call to make an appointment with one of our attorneys today. 

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