As suspected and previewed in PilieroMazza’s April 24, 2024 blog, a Texas federal judge permanently blocked the Federal Trade Commission’s (FTC) impending restriction on non-competition agreements (Non-Compete Rule). This means, at least for now, businesses will not need to follow the Non-Compete Rule and can maintain non-compete provisions in their agreements with employees, so long as those agreements are state law compliant.
U.S. District Judge Ada E. Brown indicated earlier this summer (see our coverage here) she was likely to enjoin the Non-Compete Rule on the basis that the FTC exceeded its congressionally designated regulatory authority in promulgating a broadly applicable rule. The Non-Compete Rule is the FTC’s first foray into this type of rulemaking. Judge Brown also found the Non-Compete Rule arbitrary and capricious given that it is a “categorical ban,” “one-size-fits-all” and violates the Administrative Procedures Act. While the FTC may appeal the Texas decision, at least for now, companies need not worry about a blanket ban on non-compete provisions. The case is Ryan LLC et al. v. Federal Trade Commission, case number 3:24-cv-00986, in the U.S. District Court for the Northern District of Texas.
While companies can rest easy about a federal ban, all companies utilizing non-compete provisions should be vigilant in applying state law correctly. Many states have shifted in recent years to apply restrictions on the use of non-competition provisions. Some states ban them outright, while others require income thresholds or other restrictions be met. The federal injunction does not impact these state-specific restrictions and is a reminder to dust off our employee-related agreements to ensure enforceability.
