The FTC’s Ban On Non-Compete Agreements Is Set Aside Nationwide

The Federal Trade Commission’s ban on non-compete agreements set to go into effect on September 4th was struck down on a nationwide basis by a United States district court in Texas on August 20 stating in the Order: “The Court sets aside the Non-Compete Rule. Consequently, the Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024 or thereafter.”  This means that employers across the country can avoid sending out notices telling employees that the non-compete agreements they signed are not enforceable and can instead continue to maintain non-compete agreements.  There is certainly a possibility that a federal appeals court could resurrect the rule prohibiting non-competes, but an appeal of this decision would go to the very conservative 5^th Circuit Court of Appels.  So, at least for now, employers can disregard the September 4^th deadline to comply with the FTC’s rule.

The Texas ruling came in a case where the U.S. Chamber of Commerce and a handful of other business organizations sued the FTC in federal court seeking an order blocking the non-compete rule from taking effect on September 4 as scheduled. On July 3, 2024, Judge Ada Brown from the Northern District of Texas initially agreed that the rule was an invalid exercise of the agency’s power and entered an order blocking the rule from taking effect as applied to the parties in the case.  The ruling left open the question of whether the FTC could proceed with the ban.  Then, in a separate decision just a week or so after her July 3 limited ruling, Judge Brown again declined to extend the preliminary injunction prohibiting the rule from taking effect on a nationwide basis.

Yesterday, how3ever, in ruling on cross motions for summary judgment, the Judge took another look at the FTC’s non-compete ban and determined that the ban was invalid for at least two reasons.  First, she ruled that the FTC did not have the power to issue the rule because Congress only authorized it to issue procedural rules to address unfair methods of competition, not substantive rules. “The role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do,” she said.  Her second reason for striking the rule was that the rule itself was “arbitrary and capricious” because it is unreasonably overbroad and aimed to impose a one-size-fits-all approach to non-competes, with no end date for the prohibition. Judge Brown noted that the FTC’s rule was broader than any non-compete ban passed by any state and questioned why the ban took a blanket approach rather than target specific, harmful non-competes. Finally, the Judge said that the FTC improperly failed to consider the positive benefits of non-competes or address potential alternatives rather than a nationwide ban on almost all non-compete agreements.

For those employers who have compiled an inventory of all existing restrictive covenant agreements, including those that bind former workers, hold on to that information, as the appeals court could reinstate the non-compete ban, and the inventory also could be a helpful resource for compliance and tracking purposes.

Feel free to contact us with specific questions. You can learn more about our products and services on this website or contact one of our attorneys, Jay Rollins or Debra Schwartz by calling  404.844.4130.