The End of Noncompetes? Litigation Heats Up Over New FTC Rule

By: Jonathan Landesman and Lauren N. Bess

In April, the Federal Trade Commission (FTC) sent shockwaves across the nation when it issued its final rule, which essentially bans all noncompete agreements. The ban is scheduled to take effect on September 4, 2024, and it would apply retroactively and prospectively. The ban would make almost every noncompete agreement between an employer and employee completely unenforceable unless it falls into a narrow exception for senior executives.

Two federal court lawsuits have been filed in Texas challenging the FTC rule. These lawsuits were recently consolidated, and the assigned judge, District Judge Ada Elene Brown, has indicated that she will issue her preliminary ruling on or before July 3, 2024. Business groups that oppose the rule have expressed optimism that Judge Brown is a member of the Republican Party and that she was appointed to the bench by former President Donald Trump in 2019.

However, the litigation won’t end with Judge Brown’s decision. Whether her initial ruling upholds or strikes down the FTC rule, there will be an appeal to the U.S. Court of Appeals for the Fifth Circuit. Ultimately, the case may be appealed to the Supreme Court of the United States, although it is unclear whether the Supreme Court would actually issue a substantive ruling on the constitutionality of the FTC rule.

We will continue monitoring this crucial legal development and keep you updated. In the meantime, please contact a Labor and Employment Group member with any questions about the FTC rule or how to protect your business with restrictive covenants and confidentiality agreements.