FTC Rule Against Non-Competes Held Unlawful

On August 20, 2024, a federal district court in Texas set aside the FTC’s recent rule banning non-compete agreements between employers and employees, which was set to take effect on September 4, 2024.

In reaching its determination, the court held that the FTC exceeded the rule-making authority statutorily granted to it by Congress.  The court further held that the rule was arbitrary and capricious in its breadth, which was not supported by the record created by the FTC.  The court pointed to both a lack of evidence to support the prohibition against virtually all non-compete agreements instead of targeting specific, harmful non-compete agreements as well as the FTC’s failure to consider the positive benefits of non-compete agreements and the substantial body of evidence supporting those agreements.

The court’s decision does not come as a great surprise, as this court had recently granted a preliminary injunction against enforcement of the rule.  Nonetheless, the ruling is significant as it applies nationwide against the FTC’s enforcement against all employers, even though another federal district court, in Pennsylvania, had recently upheld the rule in denying a preliminary injunction against the FTC.