Employment Law Blog

FTC Ban on Noncompetes Struck Down

A Texas Court struck down the FTC's Rule banning noncompete agreements set to take effect on September 4th, 2024. The Court ruled that the FTC had overstepped its authority in implementing the Rule and further held that the Rule was overly broad because it provided no reasonable explanation for banning virtually all noncompete agreements. 

This decision prevents the Rule from going into effect unless the opinion is successfully appealed, which is unlikely. Accordingly, noncompete agreements remain valid and enforceable unless and until the FTC and/or Congress takes further steps to implement a federal ban. The Texas Court hinted that a federal ban may be appropriate if any future Rule was targeted toward specific noncompetes or uses less disruptive alternatives. 

The effect of this decision is that businesses are free to continue to use noncompete agreements that are narrowly tailored and conform to state laws.  Please be mindful that the vast majority of state legislatures have passed laws limiting the use and enforceability of noncompete agreements. Last year, a bill was introduced in the Kentucky legislature banning noncompete agreements for certain employees.  Although this bill was not passed, we can expect similar legislation to be considered next year. As such, businesses should prepare for the possibility that Kentucky will limit the use of non-compete agreements and consider alternatives that will still protect their legitimate business interests.

If you want to read more about the Texas Court’s ruling, please click here: https://bit.ly/3T6wgmk 

Cynthia L. Effinger, Member with McBrayer, is located in the firm’s Louisville office. Ms. Effinger’s practice is concentrated in the areas of employment law and commercial litigation. Her employment law practice is focused on drafting employment manuals and policies, social media, wage and hour, non-compete agreements and workplace discrimination. Ms. Effinger can be reached at ceffinger@mcbrayerfirm.com or (502) 327-5400, ext. 2316.

Claire M. Vujanovic, Member with McBrayer, is located in the firm's Louisville office.  Ms. Vujanovic's practice is concentrated in the areas of labor and employment law and includes NLRA compliance, drafting and reviewing employment manuals and policies, drafting severance, non-compete and employment agreements, and counseling clients related to overtime and wage and hour regulations, laws and claims and workplace discrimination.  Ms. Vujanovic can be reached at cvujanovic@mcbrayerfirm.com or (502) 327-5400, ext. 2322.