On August 20, 2024, Judge Brown of the Northern District of Texas blocked the FTC’s
Final Rule banning noncompetes. The decision comes just over a month after Judge Brown’s
preliminary injunction order, which stayed the rule only as applied to the named parties. At that time, Judge Brown indicated that she would consider a broader order as part of the parties’ motion for summary judgment by the end of August 2024. In the latest ruling, the court granted plaintiff Ryan LLC’s motion for summary judgment, finding that the FTC had promulgated the Final Rule in excess of its authority and that the Final Rule itself was arbitrary and capricious. Judge Brown then concluded that the text of the Administrative Procedure Act requires that the rule be set aside and that it “shall not be enforced or otherwise take effect on its effective date of September 4, 2024.” This order applies nationwide.
The Texas court’s order comes against the backdrop of a potential circuit split with the Third Circuit, after a federal judge in Pennsylvania denied a preliminary injunction of the Final Rule in late July 2024. Perhaps buoyed by the Pennsylvania ruling, the FTC states that it is “seriously considering a potential appeal” of the decision.
The court’s ruling eliminates the uncertainty many employers were facing about what to do with their existing noncompete agreements as of September 4, 2024. For now, employers need not make any changes to their current noncompete practices due to the federal rule. However, employers should continue to monitor new laws being passed and proposed at the state level.
