On Aug. 20, 2024, the Federal Trade Commission’s ( FTC) proposed nationwide ban on non-competes — which was scheduled to go into effect on Sept. 4 and which would have invalidated millions of existing non-compete agreements and precluded their use in most future employment agreements — was barred by a Texas federal court. As a result, the ban on non-competes will not go into effect on Sept. 4.
The Texas court ruled that the FTC, which enforces federal antitrust laws, does not have the authority to ban practices it deems unfair methods of competition by adopting such broad rules. Furthermore, the court found that the proposed FTC ban was arbitrary and capricious because it was “unreasonably overbroad without a reasonable explanation.”
WHAT TO POSSIBLY EXPECT
Customarily, a party at the federal court level has 30 days from the date of a court’s order/opinion to appeal. However, the Federal Rules of Civil Procedure provide that the U.S. Federal Government, its Agencies and/or
Officers are afforded 60 days within which to appeal. Because the FTC is a federal agency, it should have until on or about Oct. 19, 2024 to appeal.
Should the FTC appeal, its appeal would be reviewed and ruled upon by a three-judge panel of the 5th Circuit Court of Appeals. Should either party disagree with the ruling of the three-judge panel, it could either (a) request that the 5th Circuit undertake an “en banc” review of the case, which means the case would be re-reviewed by all 17 active judges of the 5th Circuit (which type of request is not often granted), or (b) the 5th Circuit’s ruling can be appealed to the U.S. Supreme Court. Based upon public statements, it’s unclear at this juncture whether or not the FTC will appeal the court’s decision.
A NOTE ON NON-PIRACY AGREEMENTS
It’s important to note and distinguish that non-piracy or non-solicitation agreements/provisions, those most crucial to independent agencies, are permissible and would have remained permissible under the FTC’s proposed rule:
- A non-piracy or non-solicitation agreement/provision seeks to preclude an individual from using, sharing, or disclosing customer or prospect information obtained while working in the agency;
- A non-compete seeks to preclude an individual from working for another agency, generally within a certain timeframe and geographic radius of the agency. Be aware that independent of any proposed FTC ban, non-compete provisions are generally more likely to be scrutinized by the court since they prevent someone from earning a living in their chosen profession. If they are too strict, they tend to be invalidated by the court.
For more information on the different types of restrictive covenants, and the important difference between non-competes and non-piracy or non-solicitation provisions, members can also review IA&B’s Producer Agreement Toolkit.
Questions?
Contact IA&B VP-Advocacy Claire Pantaloni at ClaireP@IABforME.com or 717-918-9202 or IA&B Legal & Corporate Affairs Director Don Bankus at DonB@IABforME.com or 717-918-9204.