Texas Court Strikes Down FTC Noncompete Ban Nationally
On Tuesday, August 20, a Texas federal court issued a national injunction preventing enforcement of the FTC's rule banning noncompete agreements. The court's ruling is attached below.
This outcome was predicted here when the rule became effective in April:
FTC Ban on Noncompete Agreements Not Likely to Hold Up
The FTC’s unprecedented action is predicted by many to fail, because an enactment this important is probably beyond the agency’s powers.
Bill Josey
The court's Order states in pertinent part:
In sum, the Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action. The Court grants summary judgment as to Plaintiff’s and Plaintiff Intervenors’ corresponding claim(s) under the APA. The Court denies the FTC’s motion for summary judgment.
Having concluded that (i) the FTC promulgated the Non-Compete Rule in excess of its statutory authority, and (ii) the Rule is arbitrary and capricious, the Court must “hold unlawful” and “set aside” the FTC’s Rule as required under [the Administrative Procedure Act] .... [t]he Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.
Back at FTC headquarters:
There will be an appeal, of course, but it is unlikely to succeed. That said, on the state level the trend is trend is toward restricting or banning (e.g., California and Minnesota) geographic non-compete agreements. Forward-looking firms may want to consider eliminating them in favor of non-solicitation, non-dealing and confidentiality covenants.
Member discussion