On August 20, 2024, a Texas federal court struck down the Federal Trade Commission’s final rule that banned noncompete agreements nationwide. Noncompete agreements generally prevent separated employees from working for a competitor. The FTC’s final rule was scheduled to take effect on September 4. If that would have happened, the rule would have: (1) prevented employers from forcing their employees to enter into noncompete agreements; (2) prohibited employers from enforcing already existing noncompete agreements; and (3) required employers to provide notice to affected employees.
Federal Relief Unlikely
While this ruling could be appealed, it is unlikely that Judge Ada Brown’s decision will be overturned by the appellate courts. Unfortunately, this means that federal law—at least in the near term—is unlikely to prohibit employers from requiring employees to enter noncompete agreements that limit employees’ ability to make a living after separating from a company.
Minnesota Law Continues to Prohibit Noncompete Agreements
The good news, at least for Minnesota workers, is that most noncompete agreements remain illegal under Minnesota law—which is not affected by the court’s decision. Such agreements have been prohibited since July 1, 2023, though agreements entered into before that date remain enforceable. In our experience, this law has helped many clients, in particular healthcare professionals, find meaningful work much quicker after leaving their former companies.
Minnesota Employees May Still Have Other Limitations
Although the Minnesota state government banned noncompete agreements effective July 1, 2023, it did not ban other post-employment restrictions on workers. Employers still may require their employees to enter into nonsolicitation agreements and confidentiality agreements that make it more difficult for separated employees to find a job in their field. In other words, while the Minnesota ban on noncompetes would allow a separated employee to work for a competitor, a nonsolicitation agreement could prohibit the employee from soliciting and/or accepting business from former customers.
What Does It All Mean for Me?
The ruling out of Texas means that there will no longer be a federal ban on noncompete agreements. If you work in Minnesota (or in a minority of other states) such agreements are likely unenforceable, but it may depend on when you signed the agreement. Regardless of where you work, our experienced attorneys at Schaefer Halleen can help you navigate these complicated issues and ensure that you get back to work as soon as possible—without the constant dread of your former employer sending you a cease-and-desist letter.
