A first-in-nation ruling in Texas federal court casts serious doubt on the enforceability of the broad-reaching new Federal Trade Commission (FTC) noncompete rule. For any company seeking to legitimately protect its hard-earned competitive position, this opinion and the FTC’s rule must be considered and understood. While the Texas decision was limited to the parties before that court, the reasoning is important in predicting whether the FTC’s noncompete rule is likely to go into effect, and all companies need to be constantly reevaluating how they are protecting their corporate secrets.
On April 23, 2024, the FTC issued its noncompete rule, a rule that largely banned worker noncompete agreements with limited exceptions, based on the FTC’s position that nearly all noncompetition agreements constitute an “unfair method of competition” under Section 5 of the Federal Trade Commission Act, 15 U.S.C. Section 45(a). The FTC estimated that, upon the noncompete rule’s planned effective date of Sept. 4, 2024, the rule would invalidate 30 million contracts. Baker Donelson’s attorneys initially covered the decision and its significance for employers shortly after it was issued.
