In a win for employers across the country, North Texas’ U.S. District Court on August 20, 2024, issued a ruling setting aside a controversial final rule of the Federal Trade Commission (FTC) that effectively bans most non-compete agreements. The Court’s decision invalidated the final rule nationwide before it was set to take effect on September 4th.
In reaching its decision, the Court held that the FTC lacked the authority to enact said final rule. The Court called the ban “unreasonably overbroad without a reasonable explanation,” as it imposed a “one-size-fits-all approach with no end date.” The Court also noted that the FTC failed to sufficiently consider less disruptive alternatives to its final rule and did not provide any compelling justifications for this decision.
The FTC can appeal the court’s ruling to the Fifth Circuit Court of Appeals in New Orleans. Other legal challenges to the final rule are pending in federal courts in Pennsylvania and Florida, neither of which has issued a final decision. Regardless, it is unlikely that the final rule will ultimately be upheld if the FTC or others take its challenge all the way to the Supreme Court.
While employers can take comfort in knowing that the final rule will not go into effect on September 4th, they should still remember that the FTC can continue to address non-compete agreements through case-by-case enforcement actions. If you have any questions regarding or would like to discuss your company’s existing non-compete and non-solicitation or upcoming agreements, please call or email any member of our Employment or Business Law teams.
