FTC Non-compete Meets Setback

Published: July 15, 2024

On July 3, a Federal court judge ruled against the Federal Trade Commission’s (FTC) non-compete Rule (the “Rule”), prohibiting most employers from entering into or enforcing non-compete agreements with workers, subject to narrow exceptions. (Click HERE to review details about the Rule.)

U.S. District Court Judge Ada E. Brown of the Northern District of Texas granted a stay of the non-compete ban and temporarily stopped the FTC from implementing or enforcing the ban, which was initially scheduled to be effective September 4, 2024. In her ruling, Judge Brown noted the FTC “lacks substantive rulemaking authority.”

Judge Brown’s ruling is preliminary and a final order is anticipated no later than August 30, 2024. All indications are her ruling will become final.

However, Judge Brown’s ruling applies only to the plaintiffs in that case: Ryan LLC., Business Roundtable, Texas Association of Business , and Longview Chamber of Commerce. The ruling was not extended beyond these plaintiffs, even to the members of the Chamber of Commerce or related associations. Thus, presently the Rule remains as-is to the rest of the nation. It is uncertain whether it will be extended by Judge Brown, or as part of other litigation, to others affected by the Rule. Until this is determined, employers must proceed as if the ban will become effective on September 4, 2024. 

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Without the deference provided under Chevron, federal agency interpretations of their own rules, including the FTC’s non-compete rule, will be more vulnerable to challenge and court interpretation. While questions remain as to elements of application of this new ruling, it is expected to result in an increase in challenges to agency actions.