A federal court judge has issued an injunction barring the Federal Trade Commission from implementing its non-compete rule slated to go into effect on September 4, 2024. The FTC rule banned most non-compete clauses in employment agreements and required, among other things, that employers provide all employees subject to a non-compete clause with notice that the employer could no longer enforce it. The FTC rule is now a nullity unless the FTC successfully appeals the ruling, which could take months. As a result of the injunction, Wisconsin employers do not need to take any action regarding existing non-compete clauses that this rule would have required. However, such clauses continue to be governed by Wis. Stat. § 103.465 and the large body of Wisconsin case law construing employment covenants not to compete.

The FTC Rule Adjudged both Lacking Statutory Authority and Arbitrary and Capricious

Federal District Court Judge, Ada Brown, of the Northern District of Texas, issued a nationwide injunction on August 20, 2024, ruling that; (1) the FTC did not have the authority to issue the rule and, (2) the rule is arbitrary and capricious. Judge Brown identified several defects with the FTC Rule, including that it is unreasonably overbroad and uses a one-size-fits-all approach. She also noted that the FTC failed to consider the positive benefits of non-compete clauses or consider possible alternatives.

The FTC rule was far reaching in its scope and, if implemented, would have superseded both state legislative and judicial authority concerning non-competes. A more detailed explanation of the FTC Rule can be found here. A copy of the FTC Rule can be found here.

Bottom Line

Existing non-compete clauses remain subject to state law. In Wisconsin, employees remain free to require employees to enter non-compete clauses as a condition of employment. But, as always, employers must be careful to draw such agreements narrowly to address only legitimate competitive threats. For more on non-compete clauses in Wisconsin see:

Why Restrictive Covenants Fail to Protect Employers

Myths About Restrictive Covenants WI Employers Can Throw to the Curb

Covenants Not to Compete in Employment Versus Business Transactions