Client Alert: Federal Judge Strikes Down FTC’s Ban on Worker Non-Compete Agreements

Written by N'kia

On August 20, 2024, a federal judge ruled against the FTC’s ban on non-compete agreements, which went into effect earlier this year. The ban was aimed at eliminating non- competes, which restrict workers from taking jobs with competitors or starting similar businesses for a certain period after leaving their employer.

The ban sought to address wide-spread concerns that non-competes suppress wages, hinder innovation, and limit worker mobility. To that end, the ban prohibited not only obvious non-competes, but also other types of agreements, clauses, and provisions that have the same effect as non-competes (“functional” non-competes). However, the judge determined that the broad-sweeping effects of the ban renders it “arbitrary and capricious.”

While non-competes are popular for having a broad catchall effect, they are always at risk of not being enforced. In fact, narrowly-tailored options may be more effective than non- competes in achieving narrow goals. For a few examples:

• Confidentiality / non-disclosure agreements (“NDAs”) – help a business protect its confidential or proprietary data and information.

• Non-solicitation agreements – help a business protect its relationships with its clients or customers.

• Non-poaching / non-recruiting agreements – help a business protect its investment in its employees.

Although the FTC may appeal, the decision preserves the status quo for non-competes. Ultimately, the legal landscape remains risky for many businesses seeking the best balance between protecting their interests and running afoul of the law, especially employers and companies that engage independent contractors.

Businesses should always proactively evaluate their agreements and templates. There is no better time than now to review and revise agreements containing non-competes or potential functional non-competes. Whether the best approach is a non-compete or one of its various alternatives, working with legal counsel can help businesses ensure that their agreements are more likely to be enforceable under applicable law.