On April 23, 2024, the Federal Trade Commission (FTC) published a rule to ban employers from entering into non-compete clauses with workers.
On August 20, 2024, a federal judge in Texas, Justice Ada Brown, set aside that rule nationwide, finding that the FTC “promulgated the non-compete rule in excess of its statutory authority.”
This means that the FTC’s ban on non-compete agreements will not be enforced or take effect on its effective date of September 4, 2024, or thereafter.
This decision was made in response to a lawsuit filed by global tax services firm Ryan LLC against the FTC (Ryan LLC v. FTC, No. 24-cv-00986-E) seeking to “prevent the immense, undue burdens the FTC’s rule would impose on service-driven companies of every size nationwide.” The plaintiffs asked the court to set aside the rule and declare that the FTC does not have the authority to issue rules defining acts to be unfair competition.
In her decision, Judge Brown upheld the plaintiff's motion to set aside the rule nationwide.
“Judge Brown’s ruling preserves the economic freedom of businesses and their employees to enter into non-compete agreements,” said John Smith, chief legal officer and general counsel for Ryan. “They play a vital role in safeguarding intellectual property and innovation, building trust within businesses, and investing in training their people.”
A spokesperson for the FTC said the agency was disappointed by Judge Brown’s decision and would “keep fighting to stop non-competes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages.”
“We are seriously considering a potential appeal, and today’s decision does not prevent the FTC from addressing non-competes through case-by-case enforcement actions,” said FTC spokesperson Victoria Graham.
If the decision is appealed, it could take many more months before the issue is conclusively resolved. In the meantime, legal oversight for non-compete agreements reverts to state law.
In Texas, non-compete agreements are enforceable if they meet certain requirements.
We will continue to follow and share developments on this matter.
