Alert

Texas District Court Blocks FTC Non-Compete Rule

August 23, 2024

On August 20, 2024, a Texas District Court judge entered a final judgment blocking the implementation of the FTC’s proposed non-compete rule.

The rule was previously set to go into effect on September 4, 2024. It would have broadly banned the enforcement on non-compete clauses in employment agreements for nearly all employees nationwide and required employers to provide notice to employees (current and former) that their non-compete agreements were no longer enforceable. As of now, the rule will no longer go into effect.

The rule’s implementation has been long-anticipated. Its predecessor was an executive order by President Biden in 2021. The rule in its substantially current form was then submitted by the FTC as a proposed rule in January 2023. Following an extended public comment period, the FTC voted to enter the rule into the Federal Register.

Several businesses immediately filed lawsuits to stay implementation of the Rule in the Eastern and Northern Districts of Texas, the Eastern District of Pennsylvania, and the Middle District of Florida. In the case at issue, Ryan LLC v. Federal Trade Commission, Judge Ada E. Brown had previously implemented a limited preliminary injunction for the specific plaintiffs involved. The final judgment implements a nationwide injunction prohibiting implementation of the rule.

Judge Ada E. Brown’s decision held that the rule’s “categorical ban” overreached its administrative authority under the FTC Act. The Court’s ruling represents an extension of the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which limited the authority of agencies like the FTC to enact rules like the non-compete rule.

The FTC has indicated that it is seriously considering a potential appeal. It would appeal to the Fifth Circuit Court of Appeal in New Orleans, which many experts anticipate will uphold the Texas court’s decision. Given other lawsuits in the Third and Eleventh circuits, the case is likely to reach the Supreme Court, which will dictate the ultimate fate of the rule.

Until then, employers can continue to enforce and create non-compete agreements, as long as they remain compliant with the laws of the individual states.

If you have questions about your non-compete agreements, contact a member of McGlinchey’s Labor and Employment team.