Non-Compete Update: Texas Court Halts Non-Compete Ban

A Final Rule adopted by the Federal Trade Commission (FTC) in April was set to render most existing and future non-compete agreements void and unenforceable as of September 4, 2024. However, a recent court ruling has called this into question.

On August 20, 2024, U.S. District Judge Ada Brown issued a nationwide injunction blocking the FTC’s non-compete ban from taking effect. The ruling stated that the FTC exceeded its authority, deeming the rule “arbitrary and capricious.” This means that non-compete agreements remain enforceable, subject to state laws.

The Ruling and Its Impact on Michigan Employers and Employees

Judge Brown’s ruling temporarily halts the FTC’s proposed ban, allowing certain non-compete agreements to remain valid and enforceable under Michigan law. In Michigan, non-competes are generally enforceable as long as they are reasonable in scope, duration, and geography. The agreements must protect legitimate business interests, such as trade secrets, without imposing excessive restrictions on employees.

This ruling provides temporary relief for Michigan employers who rely on non-compete agreements to protect their business interests. However, it’s essential to ensure these agreements comply with Michigan law as overly broad or restrictive non-competes could still be challenged.

Key Takeaways for Michigan Employers

1. Review and Update Your Non-Competes: Ensure your non-compete agreements are narrowly tailored and comply with Michigan’s requirements. Agreements that are too broad or restrictive may not be enforceable.
2. Consider Alternative Agreements: With the legal landscape uncertain, explore alternatives such as non-solicitation, non-disclosure, or confidentiality agreements. These can offer protection without the risks associated with non-competes, so long as they’re not used to replace non-competes under a different name.
3. Stay Informed: The FTC may appeal the ruling or seek an emergency order that would cause the rule to take effect as scheduled, and future changes could impact the enforceability of non-competes. Keep up to date with legal developments and be prepared to adapt your agreements if necessary.

What This Means for Michigan Employees

For employees, the ruling means non-compete agreements remain enforceable, but only if they comply with Michigan law. If you’re considering a job change or starting a new business, it’s important to understand the terms of your non-compete agreement and how it might affect your future opportunities.

1. Understand Your Rights: Your non-compete agreement may still be valid under Michigan law. Review your agreement carefully and seek legal advice if needed.
2. Be Proactive: If you plan to leave your job or start a new business, consult an attorney to understand your rights and obligations under your current non-compete agreement.
3. Stay Informed: Legal challenges to non-compete agreements are ongoing. Stay updated on any changes that might affect your agreement, and take proactive steps to protect your career.

What’s Next for Non-Competes?

While the court’s decision offers temporary relief, the debate over non-competes is far from over. The FTC may appeal the ruling or seek an emergency order that would cause the rule to take effect as scheduled, and future legal challenges could change the landscape once again. Both employers and employees in Michigan need to stay informed and prepare for potential changes.

If you have questions about how the recent ruling affects your non-compete agreement or need assistance reviewing or drafting agreements, contact Kreis Enderle today. Our attorneys are here to help you navigate these complex issues and protect your interests.