The Federal Trade Commission (“FTC”) has rescinded the Non-Compete Clause Rule (the “Rule”) which was issued last summer that would have banned most employee non-compete provisions in employment agreements.
As we previously reported, in 2024 the FTC issued the Rule that rendered unlawful most non-competition restrictions for all workers. The Rule was to take effect on September 4, 2024. However, on August 20, 2024, in Ryan, LLC v. FTC, a Texas federal court struck down the ban deeming it unlawful. The Rule has remained “paused” pending an appeal brought by the FTC. Now, the FTC has formally withdrew its notice of appeal in Ryan, LLC v. FTC, and therefore has officially rescinded the Rule.
Although this calls an end to the FTC’s ban on non-competes for now, there has been a focus on these provisions on a federal level and across the states. Many states, such as California, Colorado, Illinois, North Dakota, Oklahoma, Massachusetts, Washington D.C., Oregon, Minnesota and Washington, have banned or heavily restrict the use of non-compete provisions. In addition, the FTC chair, Andrew Ferguson, has stated that while the Rule has been repealed, the FTC will continue to investigate and challenge anticompetitive employee non-compete agreements on a case-by-case basis.
Thus, employers should proceed cautiously when using non-compete agreements and may want to consider using alternatives to non-compete clauses in their employment agreements. Employers that do choose to utilize non-compete provisions should ensure that any existing non-compete agreements are narrowly tailored to ensure enforceability. Should you have any questions, please contact Ali Law Group.
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