FTC’s Ban on Covenants Not to Compete Remains on Hold

The legal arguments advanced in these court cases mainly concern whether the FTC has the statutory authority to enact such a ban.

Shortly before the September 4, 2024 effective date of FTC’s ban on covenants not to compete, Federal courts Florida and Texas entered orders preventing the ban from taking effect. The Texas court held that the Federal Trade Commission Act did not give the FTC authority to promulgate the ban on covenants not to compete and that its attempt to do so was arbitrary and capricious. Ultimately, it set aside the FTC’s ban on covenants not to compete and ordered that the ban shall not be enforced or otherwise take effect on September 4, 2024, anywhere in the United States. The Florida court’s ruling agreed with the FTC in several respects. It held that the FTC’s statutory authority included the ability to issue substantive rules which regulate unfair methods of competition. However, the Florida court, considering an issue not reached by the Texas court, ordered the ban not to take effect finding that the FTC had not shown clear congressional authorization for enacting such a ban. Such a showing was required, according to the Florida court, due to the extraordinary economic and political significance a ban on covenants not to compete in employment agreements presents.

The FTC filed appeals of both the Texas 5^th Circuit Court of Appeals and Florida 11^th Circuit Court of Appeals. These appeals are expected to be pending for some time. No matter how these appeals are decided, it seems likely that there will be an ultimate appeal to the U.S. Supreme Court.

The outcome of the November 5, 2024 national elections could also play a major role in future FTC action in the present litigation and otherwise.

For now, covenants not to compete in employment agreements remain enforceable to the same extent the have always been.