On August 20, 2024, the U.S. District Court for the Northern District of Texas struck down the Federal Trade Commission's (FTC) rule banning most non-compete agreements. This decision was significant because it applied nationwide, preventing the rule from taking effect as scheduled on September 4, 2024.     VIDEO
Key Points of the Ruling
- Exceeding Authority: The court ruled that the FTC exceeded its statutory authority by attempting to implement the non-compete rule. The court found that the FTC lacked the power to issue substantive rules related to unfair methods of competition, as the FTC Act only permits procedural rulemaking.
- Arbitrary and Capricious: The rule was deemed arbitrary and capricious because it was unreasonably broad and lacked a reasonable explanation. The court criticized the FTC for not considering less disruptive alternatives and for failing to provide adequate empirical support for such a sweeping prohibition.
- Nationwide Impact: Unlike earlier preliminary injunctions which were limited to specific parties, this ruling set aside the rule on a nationwide basis, meaning it affects all employers across the United States.
Implications for the FTC and Employers
- FTC's Next Steps: The FTC is considering appealing the decision to the Fifth Circuit Court of Appeals. If the appeal proceeds, the case may eventually reach the U.S. Supreme Court for a final resolution.
- Impact on Employers: For now, employers can continue to use non-compete agreements as permitted by state laws. They are not required to comply with the FTC's rule, which would have necessitated notifying employees that their non-compete agreements were unenforceable.
- Legal Landscape: The ruling challenges the FTC's authority to make broad regulatory changes without explicit congressional approval, potentially influencing future regulatory actions by federal agencies.
This decision marks a significant moment in the ongoing debate over the use of non-compete agreements in the U.S., with potential long-term implications for both regulatory practices and employment law.