Federal Judge Blocks Enforcement of FTC’s Non-Compete Ban Shortly Before September 4 Effective Date

On August 20th, a Federal District Court in the Northern District of Texas blocked enforcement of the Federal Trade Commission's (FTC) non-compete ban rule, which was expected to take effect on September 4th.

The Court held that the FTC did not have the right to create substantive rules in the manner that it created the non-compete ban rule and overstepped its administrative power. The Court also held that the FTC did not properly justify the rule’s overarching breath given it would invalidate over 30 million employment agreements and preempt the laws of 40 states.

As a result of the court’s ruling, the FTC cannot enforce their rule banning non-competes on a nationwide level. Given FTC’s ban on non-competes was blocked, employers can continue to enter into and maintain current non-compete agreements, per state laws restrictions.

In April, the FTC proposed a new rule that if implemented would have effectively prohibit non-compete agreements nationwide. Employers would no longer be allowed to enter into non-compete agreements. The rule was retroactive, rescinding all past non-compete agreements. Employers would have been required to provide notice to all current and former employees, as well as independent contractors, under active non-compete agreements. The FTC’s rule allowed for very limited exceptions for "senior executive" entered into before the rule's effective date and other employees in connection with the sale of their business.

The FTC may attempt to challenge the Federal District Court’s ruling by appealing to the Fifth Circuit Court of Appeals, but the Fifth Circuit Court of Appeals is very employer friendly and would likely side with the District Court. The FTC could then appeal the decision to the Supreme Court, but again, the current Supreme Court is also likely to rule in favor of the District Court ruling.

Both Oregon and Washington have laws that limit non-compete agreements.

In Oregon, non-compete agreements entered into on or after 1/1/22, are void and unenforceable unless:

• There duration is no longer than 12 months after termination;
• The employer has an interest to protect, such as trade secrets; sensitive, confidential business or professional information; product development plans; launch plans; marketing strategy or sales plans;
• The employee’s annualized gross salary/commissions at termination is at least $113,241 (increased each year by inflation);
• The employee is classified under the “white collar” exemptions from overtime wages;
• The agreement must be in writing and included in a written employment offer at least 2 weeks before the first day of employment and required as condition of employment, or entered into upon bona fide advancement; and
• The employer must provide the employee a signed, written copy of the non-compete agreement at least 30 days after termination,

In Washington, as of January 1, 2024, the salary threshold for enforcement of non-compete agreements is $120,559.99 for employees and $301, 399.98 for independent contractors (increased each year by inflation).

In Washington, non-compete agreements are void and unenforceable unless:

• There duration is no longer than 18 months after termination;
• The non-compete is disclosed in writing at the time of initial oral or written acceptance of employment;
• If the employer lays off the employee, at the time of termination, the employer must pay the employee the equivalent of their base salary for the duration of the non-compete enforcement period; and
• The non-compete agreement cannot have a choice of law provision for any jurisdiction other than Washington and the agreement must be evaluated under the laws of Washington.

In Oregon and Washington, non-solicitation and confidentiality agreements are not subject to these restrictions, unless they are a non-compete agreement in disguise.

UEA attorneys are available to address our Member's questions and concerns regarding non-compete agreements, as well as other employment agreements. UEA can also assist you with evaluating your employment agreements to ensure compliance with federal and state laws.