False alarm, everybody! Non-compete agreements appear to be here to stay as of 8/20/24!
Honestly, we all thought the FTC’s rule banning non-compete agreement was not likely going to happen, but after the Eastern District of Texas allowed the Department of Labor’s salary-basis threshold increase to take effect, we really thought that the federal courts of Texas either had a serious change of heart, or perhaps they were just losing their touch.
Well, Texas Judge Ada Brown from the Northern District of Texas just reminded this country on August 20, 2024, who is really in charge: Texas, apparently. Because for some reason, a single federal court in a single state whose informal motto is “Don’t Mess With Texas” has the authority to single-handedly undo months – if not years – of work by the Federal Trade Commission, with just the stroke of a pen.
Listen, let’s be clear where we stand here: the Sensenig Law Firm is an employment law firm. We write restrictive covenant agreements for a living! We absolutely understand and agree that there are entirely reasonable arguments against the FTC’s drastic action. For our part, we’ve had mixed feelings about the FTC’s approach on this subject from the very beginning. That said, the fact is that for most employers there isn’t a single legitimate business interest that cannot be adequately protected with less restrictive covenants, such as non-solicitation, non-acceptance, and trade secrets clauses.
Even if you were rooting against the FTC’s near-total ban on non-competition agreements nationwide, you must wonder why vesting a panel of unelected judges with the power to dictate its will nationwide somehow aligns with the concept of democracy. And if you hated the FTC’s ban on non-compete agreements so much that you disagree with this point, keep in mind a federal court in California might just flex its authority – the very same authority that the Northern District of Texas is applying against the FTC – to do something that you might disagree with. A bigger topic for a different day……
A non-compete agreement might be the best option for a particular company based on its business model, but non-compete agreements may not be the best option for the economy as a whole; non-competition agreements literally punish workers for attempting to improve their economic station, and the ability to move from lower to middle, or middle to upper class freely. Workers with individual grit, drive, and talent are then prohibited from staying in their geographic locations, i.e., their homes, and becoming entrepreneurs or taking on leadership roles elsewhere. This “can do” spirit and upward mobility is arguably the thing that makes America unique amongst western democracies.
Non-compete agreements can put a wall between you and the best talent available in your industry. Thanks to non-compete agreements, your competitors can literally lock you out of making a competitive offer to their best talent, or even accepting an unsolicited application from the same, no matter how badly that talent wants to join your team. This concept is strikingly anti-free market – but there are times when an employer has good reason to use a non-compete agreement to protect its business.
We at the Sensenig Law Firm never should have indulged the objectively absurd notion that the State of Texas would ever allow the FTC to get away with a ban against non-compete agreements, but hope springs eternal, even in the face of overwhelming evidence.
Well, that settles that! Sorry to have scared all of you like that, but this truly could have ended differently as we were down to the wire here with days to go before the enactment of the Ban. There still may be some fight left at the FTC -and the FTC has already vowed to appeal the ruling, but… c’mon, guys. “Fool me once,” and all that. We’ll see you again in a few years, FTC, for more sound and fury, signifying nothing.