Employers Celebrate: FTC Non-Compete Ban Blocked by Federal Judge

Published: August 27, 2024

Finding the “Federal Trade Commission lacks substantive rulemaking authority with respect to unfair methods of competition,” on August 20, 2024 Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled the Federal Trade Commission (FTC) overstepped its power when it announced its Final Rule banning non-compete agreements on April 23, 2024.  Judge Brown also found that the FTC Rule was unenforceable because it was “unreasonably” overbroad and was, therefore. arbitrary and capricious.

The FTC Rule, set to take effect September 4, 2024, would have eliminated non-compete agreements (except in very limited circumstances), affecting an estimated 30 million Americans.  The Court’s order concluded that the FTC Rule “shall not be enforced or otherwise take effect,” effectively nullifying the FTC Rule.

For employers, this ruling means noncompete agreements will be enforceable and will continue to be a tool to consider with employees to protect business and restrict competition. For employees, non-competes will continue to be included in agreements and may limit job mobility and negotiating power.

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An appeal of the ruling is anticipated by the FTC to the Fifth Circuit Court of Appeals.  It is important to continue to watch developments on the FTC Rule, and the continued interest in restricting the use of non-compete agreements, particularly with the 2024 General Election.