Noncompete agreements have come under fire recently as the Federal Trade Commission (FTC) sought to ban the use of noncompete agreements in many instances. As the FTC’s actions faced a lawsuit and legal battle, a Texas judge blocked the ruling by issuing a nationwide injunction. However, employers must still remain aware of the ongoing status of this issue and prepare for additional potential changes.
The team at Fee, Smith & Sharp LLC understands how unsettling it can be when your business faces shifts in federal guidance that can affect your business. Our Texas labor and employment lawyers work to ensure you have legal guidance and support to prevent litigation and provide aggressive representation when litigation is necessary. We help your business remain compliant with all relevant legal decisions.
Overview of FTC’s Proposed Noncompete Agreement Ban
In 2023, the FTC issued a proposal to ban noncompete clauses in the workplace. After a period of time allowing the public to comment on the proposal, the FTC issued its final ruling in April of 2024. The noncompete clause rule was intended to go into effect by September 4, 2024.
When the FTC announced the rule banning noncompete clauses in April, it stated that the use of such clauses prevented healthy competition in the workplace, innovation, and wage growth. It also added that employees should have the right and freedom to seek other ideas, jobs, and businesses. The final ruling also outlined that noncompetes are considered unfair and harmful to employees.
The new proposal by the FTC ruled that employers were prohibited from making employees enter into noncompete agreements and would not be able to enforce them after the ruling’s effective date in September. Existing noncompetes would also become unenforceable by the same date. Senior executives were the exception to this rule. Their noncompetes would remain active, but no new agreements could be created.
How A Texas Judge Blocked the FTC’s Proposal
Despite the FTC’s issuance of the noncompete ruling, Northern District of Texas Judge Ada Brown enacted a nationwide injunction in Ryan LLC v. FTC, No.3:24-CV-00986-E, preventing the FTC ruling from going into effect. The following groups brought a lawsuit against the FTC’s noncompete ban the same day the FTC’s final ruling was issued:
- Ryan LLC
- Chamber of Commerce of the United States of America
- Business Roundtable
- Texas Association of Business
- Longview Chamber of Commerce.
The plaintiffs in the case argued that the FTC was overstepping its authority, the ban was arbitrary, and that it would cause significant harm. They stated the FTC acted unlawfully because it was not issued such authority and that its use of power was unconstitutional.
The FTC may yet appeal the injunction issued by the United States Court of Appeals for the Fifth Circuit and continue its attempts to ban noncompetes in the workplace.
Implications of the Injunction for Employers
According to the U.S. Government Accountability Office (GAO), employers typically incorporate noncompete clauses or agreements to enforce confidentiality and prevent employees from competing with them if the employee leaves the company. Studies by the GAO show that approximately 18% of employees are subjected to non-compete agreements.
In the event that the noncompete ban would have gone into effect, employers would have been prohibited from enacting noncompete agreements with their employees. However, due to the nationwide injunction, employers are currently released from this directive and are able to continue operating as normal where noncompetes are concerned. This has the potential to change in the future if the FTC appeals the Fifth Circuit Court’s ruling.
While employers do not have to eradicate noncompetes within their businesses, the recent lawsuit may open the doors to further discussion about how noncompetes are used. Employers may also need to assess their policies and usage of noncompetes in light of any future guidance changes that could affect the requirements employers have to follow. Receiving counsel from a labor and employment lawyer can also be a valuable asset in determining how your company should move forward following the FTC’s blocked ban, as well as any other resulting implications on your business.
Labor and Employment Lawyers Are an Ally When Legal Guidance Fluctuates
As the state of legal guidance around noncompetes remains in flux, Texas employers should be aware that the current injunction may not be the end of this matter, and they could potentially still face more changes in the future. It is also important to talk with a labor and employment lawyer who is actively continuing to monitor and stay abreast of any forthcoming issuances that may affect employers. A lawyer will also be able to provide detailed and accurate counsel so employers remain compliant with legal statutes and requirements necessary for business operations.
Laws and regulations regarding proper business practices are subject to frequent and significant changes at times, and keeping track of these updates can feel overwhelming and confusing. However, working with a labor and employment lawyer can give you peace of mind and ensure that you receive sound guidance. You can put your focus back where it belongs: on your company’s future and success.
A lawyer will ensure that you are legally protected so you can focus on running your business without fear of litigation. They can also assess your business operations in light of current or changing laws and discuss implications your company could face as a result.
A Texas Labor & Employment Lawyer Can Help Navigate Shifting Guidance
At Fee, Smith & Sharp LLP, we help you take every precaution to keep your business protected and compliant. We are closely observing the status of the FTC noncompete litigation so we can provide you with the best advice on this subject. With our extensive knowledge and experience with Texas employment laws, our team also provides you with unwavering support, aggressive representation, and robust counsel for your business.
Contact us today to talk with our lawyers and learn about the various services we can provide for your company.
