For months, employers across the United States have been navigating a confusing landscape when it comes to non-compete agreements. Ever since the Federal Trade Commission (“FTC”) issued its final rule in April 2024 banning most noncompetes, many businesses have been left asking:  

What happens next? Will the rule stand? Will it be blocked? Do we need to change our agreements? 

This guessing game came to a halt on August 20, 2024, when a federal court in Texas stepped in. The court issued a ruling in Ryan LLC v. FTC, blocking the FTC’s rule from going into effect nationwide on September 4, 2024. This was a huge relief for employers, as it allowed them to continue using noncompetes, at least for now. 

What this ruling mean for your business 

The court’s decision didn’t just pause the FTC’s plan, it kept things as they were before the rule was issued. That means employers don’t have to make immediate changes to their non-compete agreements. 

Now, if you’ve already rescinded your employees’ non-competes, as the FTC rule required, you will have to ask those employees to sign new non-competes. In New Jersey, you do not need to give them a raise or a bonus to do so, although that’s not a bad idea. In New York, you must provide some additional compensation for the new non-compete to be enforceable. 

So long as you haven’t rescinded them, you’re free to keep existing agreements in place. You can also continue asking new hires to sign noncompetes, so long as they comply with your state’s law. 

State laws are still in full effect and determine whether your agreements are enforceable. Knowing where you stand in your state is crucial to ensuring your agreements will hold up in court. 

Next steps for employers 

So, what should you do now that the FTC’s rule is blocked?

1. Review your current agreements

Take a closer look at your noncompetes. Are they specifically designed for particular roles and interests, or are they too broad and general? Courts tend to frown on overly restrictive agreements, so now is the time to fine-tune your contracts. Make sure your noncompetes focus on protecting trade secrets, client relationships, and confidential business information.

2. Stay compliant with state laws

State laws continue to control whether a noncompete is enforceable. While New York and New Jersey have not yet passed a law restricting the use of noncompetes, such laws have been proposed. For now, court decisions in those states determine under what conditions a noncompete is enforceable. It is therefore essential to consult with local employment counsel to ensure you’re not walking into a legal trap.

3. Consider other options

If noncompetes are risky in your state, think about using non-solicitation and confidentiality agreements instead. These types of agreements are usually more enforceable and still offer protection against employees leaving and taking valuable information or clients with them. For example, a well-drafted non-solicitation agreement can prevent former employees from poaching your top clients. 

The legal hurdle of enforcing non-competes 

Although the FTC’s rule is blocked, enforcing a noncompete still can be tricky. Courts don’t automatically side with employers. They weigh several factors, including: 

• Is your agreement too restrictive?
• Does it serve the public interest?
• Is there a real business reason for enforcing it?
• Would damages be difficult to calculate?

If a judge thinks your noncompete is too broad or unfair, they might refuse to enforce it. This is why it’s critical to ensure your agreements are narrowly tailored and designed to protect specific, legitimate business interests, and not simply to block employees from finding new employment with a competitor. 

Act before it’s too late 

With the FTC’s non-compete rule blocked for now, you have time to review and refine your agreements. Don’t wait until it’s too late. Take this opportunity to: 

• Audit your existing noncompetes to ensure they’re enforceable under your state’s law.
• Consult an employment attorney in your state to be sure your business is protected now and from any future legal changes.

To learn more, watch our video

If you need help updating your non–compete, non–solicitation, and confidentiality agreements, schedule a strategy session with us today. 

Severance agreement rules have changed

This blog is for informational purposes only. It is not offered as legal advice, nor is it intended to create an attorney-client relationship with any reader. Consult with competent local employment counsel to determine how the matters addressed here may affect you.