FTC Noncompete Rule Update

Earlier this year, the Federal Trade Commission (FTC) issued a groundbreaking rule banning most noncompete agreements nationwide. However, since our initial coverage of this development in April, the legal landscape has shifted significantly. A federal court in Texas has found the rule unenforceable and has issued a nationwide injunction blocking its implementation. While this ruling currently prevents the FTC's ban from taking effect, the decision is being appealed, and the final outcome remains uncertain.

Legal Challenges to the FTC Rule

The court ruling in Texas determined that the FTC lacked the authority to impose a sweeping ban on noncompete agreements without explicit authorization from Congress. Business groups, including the U.S. Chamber of Commerce, have strongly opposed the rule, arguing that it interferes with employers' ability to protect trade secrets and proprietary information.

While the nationwide injunction halts enforcement of the rule for now, the legal battle is far from over. The case is expected to make its way through the appeals process, and the outcome could have significant implications for businesses and workers across the country. Until a final ruling is reached, noncompete agreements remain enforceable under existing state laws.

Illinois Workers Still Have Protections

Even if the FTC's rule is ultimately struck down, Illinois workers will still benefit from protections against certain noncompete agreements under the Illinois Freedom to Work Act. This state law, which predates the FTC's proposed ban, places important limitations on the enforceability of restrictive employment covenants.

Key provisions of the Illinois Freedom to Work Act include:

• Salary Thresholds: Noncompete agreements are unenforceable for employees earning less than $75,000 per year (this threshold is set to increase over time).
• Non-Solicitation Agreements: Restrictions on employees' ability to solicit former clients or co-workers are unenforceable for workers earning less than $45,000 annually.
• Legitimate Business Interests Requirement: Employers must demonstrate that a noncompete agreement is necessary to protect a legitimate business interest, such as trade secrets or confidential information.
• Consideration and Notice: Employers must provide adequate consideration (such as employment for at least two years or additional compensation) for a noncompete agreement to be valid.

What This Means for Employers and Workers

For Illinois workers, the state's Freedom to Work Act ensures that many employees will remain protected from overly restrictive noncompete agreements, even if the FTC rule is permanently struck down. Employers, on the other hand, must carefully assess their use of noncompete and non-solicitation clauses to ensure compliance with state law.

As legal challenges to the FTC rule continue, businesses and workers alike should stay informed about their rights and obligations. If you have questions about how these legal developments impact your employment agreements, CTM Legal Group is here to help. Contact us at 312-818-6700 to schedule a strategy session with our team.

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. For specific legal guidance, consult with an attorney.