Earlier this year, the Federal Trade Commission (FTC) announced a Final Rule outlawing nearly all noncompete agreements between employers and employees. That Final Rule, however, was overturned at the end of August 2024. After granting a limited injunction in July 2024, a Texas court invalidated the FTC’s Final Rule days before it was set to take effect on September 4, 2024.

The court ruled that the FTC has no authority to issue broad rules like the Final Rule banning noncompete agreements or invalidating millions of contracts retroactively. Instead, the court said the FTC could only deem noncompete agreements unfair methods of competition through case-by-case adjudication. The court also concluded the Final Rule was unenforceable because the FTC lacked sufficient evidence to support a categorical ban on non-compete agreements and failed to consider less restrictive alternatives.

So, What’s Next?

The FTC said it is considering whether to appeal the court’s decision. The chances an appeal will resurrect the Final Rule are slim, and any appeal will take years to resolve. In the meantime, the FTC warns the “decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.” It is unlikely the FTC will embark on widespread enforcement actions on a case-by-case basis to achieve a ban on noncompete agreements similar to what was proposed in the Final Rule. That does not mean, however, that noncompete agreements are likely to become easier to...

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