Just weeks before the FTC’s non-compete ban was to take effect, a Texas federal court struck down the ruling nationwide.
Originally, a Texas employer, 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. 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; however, the non-compete ban only blocked the rule as it applied to the parties in the case and not the whole country.
Judge Brown’s Final Ruling
Although Judge Brown made initial remakes on the case, she promised to issue a final ruling by the end of August.
On August 20, 2024, her first argument was that the agency didn’t have the power to issue the rule because Congress only authorized them to issue procedural rules to address unfair methods of competition, not substantive rules. Next, she also pointed out that the rule was rather arbitrary, saying things like it’s a one-size-fits-all approach with actually targeting specific and harmful non-competes.
Judge Brown also stated in her order that the non-compete ban should apply to all employers nationwide. She noted that federal law required her to “hold unlawful” and “set aside” the non-compete ban with nationwide effect.
What Can We Expect Next?
Even though there has been a nationwide block, the FTC could try to appeal the ruling. However, the odds of this happening are slim.
What Should Employers Do Now?
Employers can relax knowing nothing is changing.
Now would be a good time for employers to examine existing non-competes to ensure they meet respective state laws. Also, employers should compile an inventory of all existing restrictive covenant agreements, including those that bind former workers. Even if the rule never sees the light of day, having such an inventory could be helpful for compliance and tracking purposes.