Earlier this year, the Federal Trade Commission (FTC) previously voted 3-2 to implement a comprehensive ban on non-compete agreements nationwide, calling them an “unfair method of competition” (the “Rule”). The Rule (and the nationwide ban), which Fortis sent a previous client alert about, was set to take effect on September 4, 2024.
However, on August 20, 2024, the US District Court for the Northern District of Texas set aside the FTC’s Rule as an unlawful agency action and held that the FTC cannot enforce the Rule.
The Court’s Decision
The court concluded that the FTC did not have the authority to enact the Rule and labeled the Rule “arbitrary and capricious.” As a result, the court enjoined the enforcement of the Rule, preserving the current status of non-compete agreements and allowing employers across the U.S. to continue enforcing non-compete clauses in line with their respective state laws.
What Is the Law on Non-Competes in Colorado?
In Colorado, the Restrictive Employment Agreement Act took effect in August 2022 and generally invalidates non-competes unless they meet certain exceptions:
(1) the agreement is with a “highly compensated worker” (with the specific dollar amount updated annually);
(2) it is intended to protect trade secrets, and
(3) it is no broader than necessary to safeguard the employer’s legitimate interest in protecting those trade secrets.
What Could Be Next for a Nationwide Ban on Non-Competes?
The FTC could appeal or challenge the ruling, and a federal appeals court or the Supreme Court may eventually reinstate the ban, but the Rule will not take effect on September 4, 2024.
What Should Employers Do Now?
With the regulatory environment reverting to state-specific non-compete restrictions, ensuring that your non-compete agreements comply with all state laws for the states in which your business operates is crucial. Colorado employers can find more detailed information about the critical components of Colorado’s ban on non-competes in our previous blog post.
If you have questions or concerns about the next steps or need to update your documents and policies, please contact our employment law team.
