What happened?

On August 20, 2024, the U.S. District Court for the Northern District of Texas struck down the FTC’s ban on noncompete agreements, ruling it violates the Administrative Procedure Act and exceeds the agency’s authority, with the decision applying nationwide.

What are the details?

Key Bites

• The FTC voted 3–2 to adopt the final rule on April 23, 2024, and published it on May 7, 2024.

• FTC’s ban had been set to take effect Sept. 4.

• Several lawsuits were filed (Texas, Florida, Pennsylvania) but non had a nationwide ban: only the “ban” applied to the parties that filed suit and it did not apply to them.

• On August 20, Judge Ada Brown of the US District Court for the Northern District of Texas permanently set aside the FTC’s rule.
  • This decision contrasts with a Pennsylvania judge who upheld the ban on July 23, and a Florida judge who issued a limited injunction last week, also questioning the FTC’s authority..

• This decision contrasts with a Pennsylvania judge who upheld the ban on July 23, and a Florida judge who issued a limited injunction last week, also questioning the FTC’s authority.

• The Judge ruled that the FTC ruling exceeded the agency’s statutory authority and was “arbitrary and capricious, noting that the rule was overbroad without reasonable explanation and lacked evidence to justify a blanket prohibition.

• Consequently, the FTC rule will not take effect nationwide, and employers are not required to notify employees about nonenforcement by September 4, 2024.

According to several law firms, it is expected that the FTC will appeal this decision to the Fifth Circuit.

Business Considerations

• Although employers can rest (for now) and not have to comply with the FTC ban, employers should use caution and review their current noncompete agreements to ensure they comply with state laws, as the federal ban will not take effect.
• Employers should consider other types of agreements, such as nondisclosure or nonsolicitation agreements, which might achieve similar goals.
• Employers should stay informed about ongoing legal challenges and potential appeals related to the FTC’s rule, as the legal landscape may continue to evolve.

Source References

• Ryan v. FTC 2024
• Judge strikes down FTC noncompete ban nationwide (Industry Dive)
• BREAKING NEWS: FTC’s Non-Compete Ban Struck Down For All Employers Nationwide (Fisher & Phillips LLP)
• Federal Court in Texas Strikes Down FTC Rule Barring Non-Competes (Carter Ledyard & Milburn LLP)
• Federal District Court Blocks FTC Non-Compete Rule From Taking Effect (Ogletree Deakins)
• Federal judge strikes down FTC’s ban on non-compete agreements ( IDG Communications, Inc.)

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