employment agreements

With competing federal court decisions currently existing on whether the Final Non-Compete Rule issued by the Federal Trade Commission was valid, and would go into effect on September 4, 2024, employers were left with a major predicament at their disposal. However, last week, employers breathed a sigh of relief after a federal judge in Texas issued a ruling invalidating this final rule while issuing a nationwide injunction precluding its enforcement anywhere in the United States. In issuing its final decision, the district judge determined that the FTC lacked the legal authority to promulgate such a rule. This means that employers will no longer have to meet the various requirements of the Final Non-Compete Rule. Thus, for now, all non-compete agreements in effect will remain enforceable for the foreseeable future, while the FTC contemplates its next move that could include filing an appeal of the Texas decision. 

We will continue to keep you informed of any new developments. No doubt, this will not be the last time that efforts are made to eliminate or greatly restrict non-compete restrictions. We have already seen many states impose limitations, and while it has not yet happened in New Jersey, many bills have floated around the Legislature that are designed to greatly restrict under what circumstances non-competes may be enforced.  So, for now, employers in New Jersey have dodged a legal bullet. Whether such continues in the future remains to be seen.     

 As many of you know, back in April 2024, the Federal Trade Commission (“FTC”) adopted a final rule that would for all intents and purposes ban enforcement of almost all non-compete agreements. Since that time, I have received multiple questions about whether the rule will ever be enforced. Right now, the effective date of the rule is September 4, 2024, but unfortunately it is anyone’s guess as to whether the rule will ever be enforced.  

Shortly after enactment of the final rule, several lawsuits were filed challenging its validity and the authority of the FTC to enact such a rule. In these cases, the parties asked the courts to enjoin and stop enforcement of the rule. So far, the courts have split on this issue. In Texas, a federal judge found that the FTC lacked the power to implement the rule and preliminarily enjoined its enforcement, but it did so only against the plaintiffs in the case and not everywhere nationwide. More recently, just last week, a federal judge in Pennsylvania ruled to the contrary, finding that the rule is indeed enforceable and can go into effect on September 4. These decisions do little to clarify whether the FTC had the power to enact the final rule and also fail to provide the guidance that employers want and need in determining what will happen to existing non-compete agreements.

If the FTC final rule goes into effect on September 4, it will drastically change the non-compete horizon. Most non-compete agreements will be unenforceable, with the exception of highly compensated senior executive employees (i.e. those making at least $151,164), and employers will likewise need to provide written notices to employees letting them know that their non-compete restriction is no longer enforceable. So, for the next month, the best advice we can give on ultimate enforcement is to stay tuned and see if we have any additional litigation developments that provide any further clarity on what employers will need to do after September 4.