Texas court bars nationwide enforcement of FTC rule banning non-compete agreements

Texas Court’s decision bars enforcement of the Non-Compete Rule nationwide  

On April 23, 2024, the FTC voted to publish the Non-Compete Rule. If that rule took effect, it would have banned the use of non-compete clauses nationwide, classifying such clauses as an unfair method of competition under Section 5 of the FTC Act, and employers would have been required, by September 4, 2024, to send out notices informing those subjects to such agreements that they were no longer enforceable. The Non-Compete Rule was challenged in several federal courts. On July 3, 2024, Judge Ada Brown of the United States District Court for the Northern District of Texas, one of the courts hearing a challenge to the Non-Compete Rule, issued a preliminary injunction postponing the September 4, 2024 effective date of the Non-Compete Rule, but only as to plaintiff Ryan, LLC and plaintiff-intervenors, and not on a nationwide basis. 

In the most recent decision on August 20, 2024, Judge Brown did not limit relief to specific parties, and instead ordered that the Non-Compete Rule is unenforceable nationwide.  The court rejected the FTC’s argument for a more limited remedy, explaining: “As to the FTC’s argument that relief should be limited to the named Plaintiffs—the [Administrative Procedure Act] does not contemplate party-specific relief. As the Fifth Circuit put it in a couple of recent cases, setting aside agency action under [the Administrative Procedure Act] has nationwide effect, is not party-restricted, and affects persons in all judicial districts equally.”2 (quotation marks, citations, and brackets omitted).

This is good news for employers who have been in limbo for months over the Non-Compete Rule. Although the court’s decision may be challenged by the FTC on appeal to the U.S. Court of Appeals for the Fifth Circuit, such an appellate process will likely take months or years to conclude and could ultimately end up before the U.S. Supreme Court.