Just two weeks before the Federal Trade Commission’s nationwide ban on non-compete agreements was set to go into effect, the U.S. District Court for the Northern District of Texas struck down the FTC’s non-compete rules. For a little bit of history on this non-compete ban, please refer to our previous article, “FTC announces nationwide ban on noncompetes in the workplace.”

Shortly after the Federal Trade Commission announced its non-compete ban, the rule faced several legal challenges. In one such challenge, initially, the Northern District of Texas stayed the enforceability of the Federal Trade Commission’s final rule implementing a nationwide ban on noncompete clauses in employment agreements, but only as to the named plaintiffs in the Texas lawsuit. On August 20, that same court found that the non-compete rule should be set aside and not enforced on a nationwide basis. The court concluded that the FTC lacked statutory authority to promulgate the non-compete rule and that the non-compete rule was arbitrary and capricious. The court then declared the non-compete “unlawful” and ordered that the non-compete “rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.”

It is unknown if the FTC will continue its efforts by filing an appeal in the upcoming weeks. Employers should be aware that any appeal would be made to the employer-friendly Fifth Circuit Court of Appeals. It is unlikely that the Fifth Circuit would revive the non-compete rule. Following the court’s decision, the FTC issued a statement that the “decision does not prevent the FTC from addressing non-competes through case-by-case enforcement actions.”

This decision is excellent news for employers. Existing non-compete agreements remain safe, and employers can continue to enter into non-compete agreements in the future, as may be allowed by state law. Nevertheless, due to increased attention, employers must continue to make sure any non-compete agreements are narrowly tailored to comply with state law. For assistance, contact your McAfee & Taft Labor & Employment Group attorney.

McAfee & Taft will continue to monitor the legal progression of any appeals.