On August 20, 2024, the United States District Court for the Northern District of Texas permanently blocked the Federal Trade Commission’s (FTC) ban on non-compete agreements on a nationwide basis. While the preliminary injunction the court issued last month signaled that it was likely to block the rule, the relief initially had only applied to the named plaintiffs in the lawsuit.
In the opinion, the Texas federal judge held that the FTC lacked the statutory authority to issue the non-compete rule and that it was arbitrary and capricious. Importantly, the federal judge rejected the FTC’s argument that the relief should be limited to only the named plaintiffs. Instead, the judge held that the Administrative Procedures Act requires the FTC non-compete rule to be set aside in its entirety.
As of August 21, the FTC is “seriously considering a potential appeal” of the decision to the Fifth Circuit. The key takeaway for now is that the FTC’s non-compete rule will not go into effect on September 4, 2024. Even though the ban has been blocked, non-compete agreements remain a hot topic. The FTC retains authority to bring enforcement action on a case-by-case basis challenging non-compete agreements as a violation of federal competition law. Additionally, four states generally ban the use of non-compete agreements and 33 states plus Washington, D.C. restrict the use of non-compete agreements. In most cases, non-compete agreements remain enforceable in the context of a sale of business, subject to reasonableness and other factors.
Varnum’s Labor and Employment and Corporate Practice Teams will continue to monitor this situation. If you have questions on your company’s use of non-compete agreements, please contact your Varnum attorney.