Texas Federal Court Blocks FTC Non-Compete Ban Nationwide

The FTC’s proposed nationwide ban against non-compete agreements was struck down by a federal judge in the Northern District of Texas on August 20, 2024, and the Non-Compete Rule will no longer go into effect on September 4, 2024.

We previously reported about this lawsuit in mid-July when the same federal judge issued a preliminary injunction against the FTC Non-Compete Rule.  However, at the preliminary injunction stage, the federal judge declined to issue a nationwide preliminary injunction and, instead, limited the injunction to only the named plaintiffs in that lawsuit.  This narrow decision did little to allay the concerns of businesses with non-competes who were facing a September 4, 2024 effective date of the FTC Non-Compete Rule, which included an obligation that employers needed to provide their employees written notice that their non-competes would have been no longer enforceable.

In the August 20th ruling, the Texas federal judge held that the FTC lacked the statutory authority to issue the Non-Compete Rule and that it was arbitrary and capricious.  Importantly, the federal judge rejected the FTC’s argument that the relief should be limited to only the named plaintiffs.  Instead, the judge held that the Administrative Procedures Act requires the FTC Non-Compete Rule to be “set aside” in its entirety on a nationwide basis. Therefore, “[t]he Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024 or thereafter.”

It is expected that the FTC will appeal the decision to the Fifth Circuit and it may eventually end up before the U.S. Supreme Court.  However, at this point, the FTC Non-Compete Rule will not become effective on September 4, 2024.  Please remember that Minnesota’s restrictions on non-competes remains in effect and details regarding that law can be found here.