Court Strikes Down FTC’s Non-Compete Ban

A Texas federal court judge struck down the Federal Trade Commission’s nationwide ban of non-compete agreements on August 20, 2024, shortly before the ban’s effective date of September 4, 2024. The court’s decision means employers nationwide can maintain and enter new non-competes as permitted by state law.

In April 2024, the FTC voted to implement a nationwide ban on non-compete agreements, asserting that they are an illegal restraint of trade. The ban would have made most existing non-competes unenforceable and most new non-competes illegal. A number of lawsuits sought to prevent the ban from taking effect. U.S. District Court Judge Ada Brown’s decision in the lawsuit filed by Ryan, LLC in the Northern District of Texas is the first to find the ban unlawful and strike it down on a nationwide basis.

Judge Brown based her holding on two grounds: (1) the FTC exceeded its statutory authority in implementing the ban, finding that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition, and (2) even if the FTC had authority to issue the ban, the ban is arbitrary and capricious due to its overbreadth and the FTC’s failure to consider the positive benefits of non-competes (among other reasons).

Employers should stay alert for news on whether the FTC appeals this ruling or begins efforts to invalidate particular employers’ non-competes on a case-by-case basis through enforcement actions. For now, employers should comply with state law on entering and enforcing non-competes while mindful that this is an evolving area of the law.

This article is for informational purposes only and should not be considered legal advice. Please consult with your legal counsel regarding any specific situation.

 Written by Christie Newkirk and Tayler Gray from Carrington, Coleman, Sloman & Blumenthal, L.L.P.