What's a NON-COMPETE?

What's a NON-COMPETE?

In June 2024, the Federal Trade Commission issued a rule banning most post-termination non-competes in the United States. This rule applies effective September 4, 2024 in a broad range of circumstances in the employment context. 

In July 2024, the United States District Court for the Northern District of Texas held that this rule exceeds the Federal Trade Commission’s authority. The Court issued a preliminary injunction staying the rule’s effective date. This applies only to the plaintiffs before the Court. There are other lawsuits pending across the US challenging this rule. Let’s unpack all this vocabulary. 

What's non-compete?

The Federal Trade Commission’s rule defines a non-compete clause as: 

A term or condition of employment that prohibits a worker from, penalizes a worker for,  or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.

Example

For a twelve-month period following the termination of the employee’s employment, the employee shall not perform services for a competitor of the employer that are substantially similar to the services the employee performed for employer.  

This type of clause can be described as a:

• non-compete clause, 
• noncompete clause, 
• non-competition clause, or
• post-termination restrictive covenant 

Or, more informally, simply as a non-compete / noncompete. 

Examples

1.  The employment agreement includes a non-compete clause. 
2. I can’t accept this job, because of the noncompete I signed last year.
3. Non-competition clauses are not always enforceable. 

Notice the use of prepositions in the FTC’s rule. Prepositions are a challenging feature of English, but they are important to get right, as they affect the meaning 

• prohibits a worker from
• penalizes a worker for
• prevents a worker from

The Court held that the rule exceeds the Federal Trade Commission’s authority. When a court holds something, it makes a decision or a ruling about that thing. 

•  The court held that the non-compete clause in my employment contract is unenforceable.  

The Court held that the rule exceeds the Federal Trade Commission’s authority. When a decision maker exceeds their authority, they are doing something that they don’t have the power to do.

• The arbitral tribunal exceeded its authority by holding that the non-competition clause was unenforceable, since that clause was not covered by the arbitration agreement.  

The Court issued a preliminary injunction staying the effective date of the rule. An injunction is a court order requiring someone to do something, or not do something. A preliminary injunction applies on a temporary basis, before the case is decided on its merits. This is called an interlocutory injunction in some jurisdictions. 

 The Court issued a preliminary injunction staying the effective date of the rule.  A legal document’s effective date is the date on which it takes effect; in other words, the date on which it becomes binding.  

• The new rules don’t apply to my employment contract, because their effective date is not until next year.  

The Court issued a preliminary injunction staying the effective date of the rule. In this context, staying means postponing or suspending. To stay a law’s effective date means to postpone the date on which the law takes effect.

There are other lawsuits pending across the US challenging this rule. Lawsuits that are pending have not yet been resolved. 

•  I argued in court that the non-compete is unenforceable, but I don’t have the court’s decision yet, because my case is still pending.