FTC’s Non-Compete Ban Blocked for Employers Nationwide

A Texas federal court has struck down the Federal Trade Commission’s (FTC) proposed nationwide ban on non-compete agreements, just weeks before it was set to go into effect on September 4. This decision maintains the status quo and allows employers across the country to enforce non-compete clauses in accordance with their state laws. While the rule could be revived by a federal appeals court or the Supreme Court, the immediate impact of the Texas ruling is that the September 4 compliance deadline is no longer applicable.

Court’s Ruling

The judge criticized the FTC’s ban on two fronts. First, Judge Ada Brown from the Northern District of Texas ruled that the FTC lacked the authority to issue such a rule, as Congress only granted it power to enforce procedural rules, not substantive ones. Second, she deemed the rule “arbitrary and capricious” for several reasons. Consequently, she declared the nationwide ban unlawful and set it aside, with the ruling applying uniformly across all judicial districts.

What’s Next?

The FTC may attempt to challenge this decision by appealing to a higher court or potentially seeking an emergency order to implement the rule as planned. However, given the 5th Circuit Court of Appeals’ reputation for being business-friendly, and the Supreme Court’s recent stance against expansive regulatory power, the likelihood of overturning this ruling seems low.

What Should Employers Do Now?

This ruling means that the regulatory landscape reverts to state-specific non-compete restrictions. As always, employers should ensure that their non-compete agreements are compliant with state laws, but with regard to any efforts to comply with the FTC rule’s notice requirements for current and former employees subject to non-compete agreements, it’s pencils down for employers.

For questions on this ruling and counsel on how to best update your policies, please reach out to Niki Schwab or Brad Schoenfeld.