Recently, the Federal Trade Commission (FTC) issued a final rule that bans most non-compete agreements throughout the United States. Texas business owners should be aware of this rule and understand what it does. By the same token, the rule does not immediately go into effect and will be delayed by litigation.
No matter what happens at the federal level, Texas has its own rules concerning non-competes. You deserve to have legal counsel that stays on top of changing laws and rules. The Oracle Legal Group is here to guide you.
To schedule a free business consultation, give us a call today at 832-291-2798.
The FTC’s Final Rule on Non-Competes
The FTC issued a final rule on April 23, 2024, that bans most non-compete agreements. New non-competes are prohibited everywhere, despite the seniority of the employees who sign them. This ban applies proactively to bar any new non-competes from being enforced after the effective date.
The FTC decided to prohibit non-competes as an unfair form of business competition. According to the agency, allowing employers to control their employees’ post-employment activities (even if they compete) violates federal law.
Does the Rule Affect Existing Non-Compete Agreements?
No new non-compete agreements can be entered into for any employees. But there is a limited exception for existing non-competes. They may remain in force for whom the FTC defines as “senior executives.” These are workers who earn at least $151,164 annually and who are in policy-making positions.
The FTC estimates that fewer than 1% of all workers would meet this criteria. Practically, therefore, nearly all non-competes are prohibited under the new rule, regardless of when they were entered into.
Is the Rule in Effect Now?
The new rule will not go into effect until 120 days after being published in the Federal Register. What this means is that it probably won’t be effective until at least September. Lawsuits are also likely to cause enforcement delays.
Several lawsuits have been filed in federal courts to try to stop this rule. Plaintiffs want the courts to implement a stay or injunction to prevent enforcement of the ban. More lawsuits are likely to be filed.
Are Non-Competes Allowed Under Texas Law?
Regardless of whether the FTC rule is upheld in the courts, states can limit non-compete agreements. And the fact is that most states do restrict the ability of employers to control post-employment conduct like competition. Your business therefore needs to know how Texas courts would likely handle non-compete agreements you sign with your employees.
Non-competes are allowed in Texas provided they are reasonable. This means the agreement must:
- Protect the employer’s legitimate business interests: For instance, an employer would likely have a valid reason to prohibit a former employee from using trade secrets. This includes in the context of competing against the former employer.
- Be reasonable in scope: This means that the non-compete agreement cannot apply indefinitely and throughout the country. Instead, it must be reasonable in terms of duration, geography, and what it prohibits.
- Be executed for valid consideration: The employee must receive adequate or sufficient consideration for signing the agreement. Said consideration must be something more than a promise to continue employing the worker or a cash bonus.
Trusted Counsel for Your Texas Business
With the FTC rule delayed and being held up in courts, businesses everywhere are effectively in limbo. Whether you are considering asking employees to sign non-competes or you have already executed them, you should consult a Texas business law attorney.
The Oracle Legal Group can help. We advise employers on various laws, rules, regulations, and court decisions that affect their bottom line. To learn more about non-compete agreements and the FTC rule, give us a call today at 832-291-2798.
