Federal Judge Halts FTC’s Non-Compete Ban:

What It Means For Employers

Dallas, TX – August 29, 2024 – A federal judge in Texas has halted the Federal Trade Commission’s (FTC) planned non-compete ban. The FTC was set to implement the new regulation, known as the “Non-Compete Rule” or “Final Rule,” on September 4, 2024. This rule would have broadly prohibited employers from enforcing non-compete agreements, with only a few exceptions. Since its announcement in April 2024, the Non-Compete Rule has been a major topic of national debate and legal scrutiny. The FTC aimed to boost employee freedom and enhance competition within the U.S. labor market. However, ongoing legal challenges have left employers and employees in a state of uncertainty as the implementation date approaches.

Ryan LLC, a Dallas-based company, challenged the rule under the Administrative Procedure Act (APA), which allows courts to overturn agency actions deemed unlawful. In July 2024, Judge
Ada Brown of the Northern District of Texas had previously issued a memorandum opinion and order placing a temporary hold on the rule’s effective date and granting a preliminary injunction.
On August 20, 2024, Judge Brown issued a memorandum opinion and order granting the Plaintiff’s motion for summary judgment. In her ruling, Judge Brown relied on the authority
granted to the Court under the APA and the Declaratory Judgment Act. She concluded that the FTC’s Non-Compete Rule exceeded the FTC’s statutory authority, was unconstitutional, and was
both arbitrary and capricious. The Court emphasized that “agencies are creatures of Congress,” underscoring that the FTC cannot act independently of Congress’s approval.

When evaluating the FTC’s Non-Compete Rule under the APA’s “arbitrary and capricious” standard, the Court determined that the Rule was “unreasonably overbroad and lacking a reasonable basis” and imposed a “one-size-fits-all approach with no end date.” The Court referenced the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo to interpret the APA. Given that the Court found the Rule exceeded the FTC’s statutory authority and was arbitrary and capricious, the APA mandates that the Rule be set aside as unlawful. Consequently, Judge Brown’s ruling means the Non-Compete Rule cannot be enforced starting September 4th and is not applicable nationwide.

Although news headlines may suggest that the FTC’s non-compete ban is entirely dead, it is likely that the decision will be appealed. The FTC could challenge the ruling in the Fifth Circuit
Court and potentially the Supreme Court, which means the legal battle may continue for some time. FTC spokesperson Victoria Graham responded to the decision by expressing the FTC’s
disappointment and revealing that the agency is “seriously considering” an appeal. Graham also noted that the ruling does not prevent the FTC from addressing non-compete agreements through
“case-by-case” enforcement actions. To navigate evolving regulations and ensure compliance, businesses should consult with the legal specialists at Kessler Collins.

About Kessler Collins

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