Legal Update - FTC Non-compete Ban

In April 2023, the Federal Trade Commission (FTC) adopted a rule to ban non-compete agreements nationwide, aiming to protect workers from restrictions that limit their mobility and career opportunities. The FTC argued that non-competes stifle innovation, reduce wages, and harm workers by preventing them from seeking new opportunities, particularly in industries where talent is crucial. The rule, which was scheduled to become effective September 4, 2024, would have made nearly all non-compete agreements illegal, including those that were signed before the effective date of the rule.

In a significant development, in August 2024, a Texas federal court struck down the FTC’s non-compete ban, declaring the rule unconstitutional. The court found that the FTC had overstepped its authority, arguing that only Congress—through legislation—has the power to enact such sweeping changes to labor law. The court’s decision followed a challenge by several states and business groups, which claimed the FTC’s rule was an overreach of its regulatory power. The FTC appealed the court’s ruling.

After President Trump was elected to a second term, questions remained about whether the government would continue to defend the FTC rule. On March 7, 2025, the federal government filed a motion to stay the proceedings in its pending appeal of the Texas court’s decision, suggesting that the government may abandon its efforts to defend the FTC rule.

With the Texas court ruling still in effect, the FTC’s non-compete ban has no impact, and the legality of non-compete agreements remains largely unchanged. As a result:

1. State Laws Prevail—Non-compete agreements continue to be governed by state laws. While some states, like California, have long banned non-competes, others, including Texas, enforce them under certain conditions.
2. Enforcement of Existing Agreements—Employers in states where non-competes are still enforceable can continue to use and enforce them. It appears that, under the current administration, the FTC will likely stop defending the non-compete ban in court, or drop the rule altogether.
3. Recommendation—Employers and employees should stay informed about developments at both the federal and state levels, as these rules may evolve further in response to ongoing legal challenges and public pressure for reform. If you have any questions concerning the enforceability or scope of a non-compete agreement, we strongly recommend that you seek advice from the experienced Atlanta, Georgia non-compete lawyers at Fidlon Legal.