The Federal Trade Commission recently posted a notice on its website acknowledging that the federal court injunction issued in Texas will prevent implementation for now of its final regulations restricting use of noncompetition and related agreements with employees. While the FTC decides whether to appeal this decision to the Fifth Circuit Court of Appeals, employers that were preparing to potentially lose their noncompetes are now faced with an apparent return to the status quo. However, even prior to issuance of the FTC rule, companies were facing increasing barriers to use and enforcement of post-employment restrictive covenants.

A number of state legislatures have eliminated or severely restricted use of noncompetes in their jurisdictions. A growing number of additional states are considering similar measures. In fact, the FTC rule may have been in part a signal to states to take a hard look at the impacts of noncompetes on their workers and businesses. In states that have not restricted use of noncompetes through legislation, courts have often displayed an increasing hostility to agreements they view as unfair or overbroad. North Carolina courts, for example, have in recent years voided noncompetes based on technical issues or incorporation of terms routinely used in other states.

Both the FTC and some state attorneys general have threatened or filed lawsuits against companies they accuse of using noncompetes for anticompetitive practices. Most of these cases have involved situations where employers place hourly workers under onerous restrictions, including excessive training reimbursement requirements. 

Employers using or considering the use of post-employment restrictions should limit such agreements to executives, salespersons, or other workers with an actual ability to harm the company through direct competition. The agreements should be narrowly constructed, focusing on the type of work performed and actual customers serviced by the employee. Both the term of the restrictions and their geographic territory should be specifically tailored to match the competitive threat posed by the employee. Even if the FTC rules are never resurrected, these legislative and judicial trends will likely continue, making noncompetes and similar agreements with employees more difficult to enforce in the future.

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