On August 20, 2024, a federal court in Texas struck down the Federal Trade Commission’s (FTC) proposed Rule banning noncompete agreements which was to go into effect on September 4, 2024.

U.S. District Judge Ada Brown ruled that the FTC exceeded its rulemaking authority in issuing the Rule and found it to be arbitrary and capricious. As a result, Judge Brown's ruling blocks the FTC Rule from going into effect nationwide.

The FTC cannot enforce the Rule at this time but may file an appeal to the U.S. Court of Appeals for the Fifth Circuit. The ruling does not prevent the FTC from addressing non-competes through case-by-case enforcement actions.

For employers, this ruling means that the status quo for noncompete agreements remains in place. Businesses can continue to use non-competes but should be mindful of state-specific laws and any ongoing legal developments. Here are a few key takeaways:

1. Review Your Noncompete Agreements
   Ensure that your non-competes are compliant with state laws and are narrowly tailored to protect legitimate business interests, such as trade secrets and client relationships.
    
2. Monitor Legal Changes
   While the federal ban has been struck down, there may still be legal challenges or new regulations at the state level. Stay informed about changes in the law that could impact your use of non-competes.
    
3. Consider Alternative Protections
   If your state has strict noncompete laws, explore other contractual protections like nondisclosure agreements (NDAs) or non-solicitation clauses to safeguard your business interests.
    

Employers should stay vigilant and consult with legal counsel to ensure their employment agreements comply with the evolving legal landscape.