The short answer to this question is no, at least not yet, probably not in the next four years, but not for the lack of trying.
On January 19, 2023, the Federal Trade Commission (FTC), a commission created in 1914 with the power to prevent unfair methods of competition, proposed a Non-Compete Rule, which would have imposed a ban on most noncompete agreements and required employers to rescind existing noncompete agreements. The rule was scheduled to go into effect on September 4, 2024.
But in a case filed in the United States District Court in Texas, a private company, joined by the Chamber of Commerce and local business organizations, challenged the rule as unconstitutional and further challenged the FTC’s rulemaking authority and its enforcement power.
In a nutshell, on cross motions for summary judgment (where both parties agree on facts but disagree on the legal conclusions to be drawn from those facts), the Texas judge, reading the Federal Trade Commission Act that created the FTC, the Amendments to the Act, and the federal regulations, concluded that, while the FTC “had some authority” to create substantive rules to prevent unfair competition, the FTC “exceeded its statutory authority in implementing the Rule,” and “the Rule is arbitrary and capricious.”
The decision of the Texas court had the effect of barring enforcement of the rule in all states, as the judge rejected the FTC’s argument that the decision should apply only to the company that brought the action. The FTC has appealed the decision to the United States Court of Appeals for the Fifth Circuit. It is likely any decision of that appellate court will go to the United States Supreme Court. It is unlikely that the Supreme Court will uphold the FTC’s ban.
Employers will still have to abide by limitations on noncompete agreements passed by individual states. California bans noncompete agreements altogether; Massachusetts imposes restrictions on which employees can be subject to a noncompete agreement as a condition of employment and sets other limitations; Colorado also restricts the scope of noncompete agreements, and other states are considering limited on these agreements.
