Bottom line: As of Tuesday night, the FTC’s non-compete rule has been set aside, cannot be enforced, and will not become effective on September 4, 2024.
As an update to our prior alert regarding the Federal Trade Commission’s attempt to ban non-competes, [Employers in Limbo After Ruling on FTC’s Non-Compete Ban], on August 20, 2024, Judge Ada Brown of the U.S. District Court for the North District of Texas entered a final ruling on the merits setting aside the FTC’s non-compete rule. As predicted, Judge Brown followed the analysis in her prior ruling and held that (1) the FTC lacked the statutory authority to issue the non-compete rule and (2) even if the FTC had such authority, the rule was arbitrary and capricious. She specifically stated the decision had nationwide effect, was not party-restricted, and affected persons in all judicial districts equally. As a result, the FTC ban on non-competes will not take effect on September 4, 2024 and cannot be enforced.
The FTC will appeal – either on an expedited basis or utilizing the regular schedule. Given the Fifth Circuit’s skeptical view of governmental agency authority expressed in recent opinions, we believe Judge Brown’s decision will be affirmed. That process though could take a year or longer. If affirmed at the Fifth Circuit, the FTC could appeal to the U.S. Supreme Court. Again, even at that level, we like the odds of the decision being affirmed. As the press has reported, the Supreme Court last term aggressively moved to curb the power of administrative agencies.
The current parameters and limitations under state laws across the country will remain in place. As a result of the FTC rule not taking effect, we expect more states to limit the use of non-competes, with salary thresholds being the most likely limitation. Depending on the party control of the House and Senate after the November elections, Congress could even get involved.
The national debate on the use of non-competes is far from over.
