Client Alert: Noncompete Ban Overturned
In May and July of this year, Bernkopf released two client alerts by Eric Allon and David Hansen concerning the Federal Trade Commission’s prospective ban on the vast majority of noncompete agreements throughout the United States. In April of 2024, the FTC’s Chair, Lina M. Khan, stated that “[t]he FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.” Businesses and employers, however, have argued that noncompete agreements protect company trade secrets and prevent the poaching of valued employees.
On July 3rd, a federal district trial court in Texas issued a preliminary injunction in the matter of Ryan, LLC v. FTC, temporarily blocking the enactment of the FTC’s rule. At the time, the court declined to issue a universal, nationwide injunction, but rather limited its ruling to the parties of that lawsuit.
Now, on August 20th, the Ryan court ruled that the FTC lacks statutory authority to promulgate the Noncompete Rule, and thus the Rule is an “unlawful agency action.” The court holds that the proposed ban is “arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation,” and that the FTC failed to sufficiently address alternatives to issuing the Rule.
The nationwide ban was set to take effect on September 4, 2024, but now must be set aside pending appeal. The Rule would have required employers to send notice to affected workers by September 4th that their noncompete clauses are no longer in effect. In light of this recent ruling, employers need not send such notices and their noncompete clauses remain intact at the federal level.
Businesses must nonetheless remain compliant with state law. Massachusetts, like many other states, has statutory limitations on noncompete agreements that are not affected by the decision in Ryan.
If you have any questions about these developments, or how you can leverage restrictive covenants to protect investments in your business, please contact Eric Allon, David Hansen, or your Bernkopf attorney.
You can find our previous alerts on the Noncompete Rule here and here.
ABOUT THE AUTHOR
Eric R. Allon
Of Counsel
Eric’s principal practice areas are real estate law and business law, with particular emphasis on commercial leasing, the acquisition, management and sale of properties, financing transactions, commercial loan workouts and residential and commercial development.