FTC Rule: What You Need to Know

By: Judd A. Genda & Robert C. Procter   |  

On August 20, Federal District Court Judge, Ada Brown, of the Northern District of Texas, issued an injunction barring the Federal Trade Commission (FTC) from implementing its non-compete rule scheduled to go into effect on September 4, 2024. The FTC rule banned most non-compete clauses in employment agreements and required, among other things, that employers provide all employees subject to a non-compete clause with notice that the employer could no longer enforce the clause. Judge Brown’s decision invalidates, on a nationwide basis, the FTC’s non-compete rule.  The FTC is expected to appeal the decision.  Such an appeal will likely take months.

In its ruling, the Court concluded that: (1) the FTC did not have the authority to issue the rule and, (2) the rule is arbitrary and capricious. Judge Brown identified several defects with the FTC Rule, including that the FTC did not provided sufficient evidence to justify a rule banning all non-competes, and that the rule is unreasonably overbroad and uses a one-size-fits-all approach. She also noted that the FTC failed to consider the positive benefits of non-compete clauses or consider possible alternatives.

As a result of the injunction, Wisconsin employers do not need to take any action regarding existing non-compete clauses that the FTC rule would have required. However, such clauses continue to be governed by Wis. Stat. § 103.465 and the large body of Wisconsin case law construing employment covenants not to compete.