By: Bryan J. O’Neill
FTC Bans Noncompete Agreements
On April 23, 2024, by a 3-2 vote, the Federal Trade Commission (FTC) issued a final rule banning most noncompete agreements (the “Rule”). In sum, the Rule provides that it is an unfair method of competition for persons to enter into non-compete agreement with workers on or after the Rule’s effective date. Under the FTC’s new Rule, existing non-compete agreements for most workers will no longer be enforceable after the Rule’s effective date, which is 120 days after the date of publication in the Federal Register (May 7, 2024), which is September 4, 2024.
Ban Supersedes State Laws
Non-compete agreements are prevalent in employment contracts, particularly in industries such as technology, sales, finance, and healthcare. Louisiana’s current law on non-compete agreements was already narrowly tailored, with a limit on refraining the employee from carrying on or engaging in a business similar to that of their employer (1) within specified parishes that the employer carries on a like business therein and (2) for a period not to exceed two years from termination of employment. La. R.S. 23:921. However, the new FTC rule contains an express preemption provision – meaning it will supersede all contrary state laws. § 910.4(a) of the Rule.
Narrow Exceptions to the FTC Rule
The Rule allows existing non-competes for senior executives – who, according to the FTC, represent less than 0.75% of workers – to remain in force. However, employers are banned from entering into or attempting to enforce any new non-competes, even if they involve senior executives.
The second narrow exception, which is a more common type of non-compete in Louisiana, is that there is an exception allowing non-competes in the bona fide sale of a business, sale of a person’s ownership interest in a business, or all or substantially all of the business’s operating assets.
Legal challenges expected
A number of cases have already been filed challenging the FTC’s Rule. Two lawsuits have already been filed within the 5th Circuit. First, tax services firm Ryan, LLC filed suit against the FTC in the Northern District of Texas (Ryan, LLC v. Federal Trade Commission, Case No. 3:24-cv-00986), and the Chamber of Commerce filed its challenge to the Rule in the Eastern District of Texas (Chamber of Commerce of the United States of America, et al. v. Federal Trade Commission, Case No. 6:24-cv-00148). No rulings have been issued in these cases yet, and even still, the appeal process will likely take some time. Further, more lawsuits are expected. Unless or until the Fifth Circuit or the United States Supreme court issues an opinion on the Rule, companies in Louisiana will likely not be able to enforce existing non-competes for non-exempted employees.