2 min read

Court: FTC Ban on Non-Competes Invalid, but...

Judge declines to enter national injunction

The Federal Trade Commission's rule banning all non-complete agreements, slated to become effective on September 4, 2024, has generated much commentary since it was approved in April of this year. When the Rule came out in April, Staffing Legal news noted: "the FTC's unprecedented action is predicted by many to fail, because an enactment this important is probably beyond the agency's powers. Lawsuits will be filed asserting that such a sweeping rule can only be enacted by Congress."

One of those lawsuits last week resulted in a ruling by a Texas federal judge that the rule was indeed beyond the powers of the FTC to enact. A copy of the court's Opinion is attached below. Notably, the court declined to enter a national injunction, meaning that for now only the plaintiff in that case can benefit from it. However, the court seemed to leave the door open for the U.S. Chamber of Commerce and other intervening interest groups to seek a broader injunction covering all businesses in the United States. The court has promised a final ruling before August 30, 2024.

Meanwhile, there is another challenge to the FTC rule pending in Pennsylvania. The judge there, an Obama appointee, could potentially come to the opposite conclusion reached by the Texas court, creating a conflict between courts, at least at the trial court level. Then each case would make its way through the appellate process in their respective appellate circuits, a process that would run well into 2025 at the very least, before possibly ending up before the U.S. Supreme Court. But absent a nationwide injunction, or voluntary pause by the FTC (unlikely), come September the potentially unlawful rule may go into effect, creating an extraordinary amount of uncertainty and some tough choices for companies that value non-compete agreements.

Finally, there is the potential for a change in administrations in January, which could conceivably result in a separate avenue to invalidate the rule.

Portent Papa John GIF by Jason Clarke