Texas Court Blocks FTC's Non-Compete Rule

On Wednesday, July 3, 2024, a federal judge in Texas blocked the Federal Trade Commission’s rule that seeks an almost complete ban of non-compete agreements. In her ruling, Judge Ada Brown of the United States District Court for the Northern District of Texas granted the plaintiffs Motion for a Preliminary Injunction, delaying the effective date of the rule, but only as to the plaintiffs in the case before her. In doing so, Judge Brown noted that the FTC had exceeded its authority in issuing the Rule and that the lawsuit filed by the U.S. Chamber of Commerce and other business groups was “likely to succeed on the merits.”  Notably, the judge refrained from blocking the rule on a nationwide basis, at least for the time being.

The FTC’s rule, which would ban nearly all non-compete agreements and provisions, is currently set to take effect nationwide on September 4, 2024. While the Texas lawsuit will proceed and appeals are likely to follow, the judge’s order certainly calls into question the viability of the FTC’s rule. Judge Brown could still choose to issue a nationwide injunction as the case proceeds and another federal court in Pennsylvania is scheduled to rule on a similar request for an injunction by July 23, 2024. Uncertainty around the FTC’s rule is further underscored by the upcoming presidential election and the possibility of a new administration that may choose to scuttle the FTC’s efforts altogether.

For the time being, employers should continue to monitor developments but avoid taking any drastic actions in response to the FTC rule, as it now appears to be on precarious legal footing. Employers should continue to be mindful, however, of any state and local laws that may limit or prohibit an employer’s use or enforcement of restrictive covenants, including non-compete agreements. Please contact Mike Chesney or any other members of Frantz Ward’s Labor and Employment Practice Group with questions.