Complete Story
08/21/2024
FTC’s Non-Compete Ban Struck Down For All Employers Nationwide
Source: Fisher Phillips, August 21, 2024
A Texas federal court just struck down the FTC’s proposed ban on non-competition agreements on a nationwide basis mere weeks before it was set to take effect, meaning employers across the country can breathe a sigh of relief and continue to maintain non-competes as their state laws allow. While there is a slim chance the rule could be resurrected by a federal appeals court in the future, what’s for certain after yesterday’s ruling is that you will not have to comply with the rule by September 4 as originally scheduled. What do you need to know about this significant development and what should you do now that the landscape has shifted once again?
What Happened?
A Texas employer, the U.S. Chamber of Commerce, and a handful of other business organizations sued the Federal Trade Commission (FTC) in federal court seeking an order blocking the non-compete rule from taking effect on September 4 as scheduled.
Judge Ada Brown from the Northern District of Texas initially agreed that the rule was an invalid exercise of the agency’s power on July 3, but only blocked the rule as it applied to the parties in the case and left open the question of whether the FTC could proceed with the ban. She later promised to issue a final ruling on the matter by August 30.
Judge Deploys 2 Main Arguments to Kill Non-Compete Ban
The judge took a two-pronged attack to the FTC’s non-compete ban. Her first line of attack was ruling that the agency didn’t have the power to issue the rule because Congress only authorized it to issue procedural rules to address unfair methods of competition, not substantive rules. “The role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do,” she said.
Her second rebuke was concluding that the rule itself was “arbitrary and capricious” for the following reasons:
- She found that the rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation.
- The rule aimed to impose a one-size-fits-all approach with no end date.
- She pointed out that no state in the country has enacted a non-compete ban as broad as the FTC’s rule.
- She questioned why the rule didn’t target specific, harmful non-competes instead of taking a blanket approach.
- The agency failed to consider the positive benefits of non-competes, she said.
- She added that the agency failed to sufficiently address potential alternatives rather than a nationwide ban on just about every non-compete.
Rule Blocked for All Employers Across the Country
Most importantly for employers, Judge Brown concluded that her order setting aside the non-compete ban should apply to all employers across the country. As noted above, she originally just blocked the rule from taking effect for those parties that had filed suit in the Texas case. In fact, in a separate decision just a week or so after her July 3 limited ruling, she again declined to extend the preliminary injunction nationwide – leaving employers in a state of uncertainty as the days dwindled down towards the effective date.
