Litigation continues in various federal courts nationwide over the Federal Trade Commission's (FTC) rule banning most non-compete agreements. With the most recent court decision in Texas implementing a nationwide injunction as to the FTC rule, it is not likely that the rule will go into effect as planned on September 4, 2024, as most employers had expected.
Texas Judge Issues Nationwide Injunction Striking Down FTC Non-Compete Rule
In a widely anticipated decision, Judge Ada E. Brown of the U.S. District Court for the Northern District of Texas issued a nationwide injunction preventing the FTC's non-compete rule from taking effect. Absent the Texas court's injunction, the rule would have gone into effect on September 4, 2024.
Judge Brown ruled that the FTC lacked the statutory authority to issue the non-compete rule, thus rendering it an unlawful agency action in violation of the Administrative Procedure Act (APA). Furthermore, even if the FTC had the authority to issue the rule, Judge Brown found the agency enacted the rule in an arbitrary and capricious manner, given that it was unreasonably overbroad in banning most non-compete agreements.
The Texas judge had previously granted a preliminary injunction blocking the rule from applying to a few employers involved in the lawsuit, finding a substantial likelihood that the non-compete rule was unlawful.
Pennsylvania Judge Upholds FTC Ban on Non-Compete Agreements
A federal district court judge in Pennsylvania upheld the FTC's non-compete rule in July. That judge sided with the FTC in finding that the agency acted reasonably and within the bounds of its authority in enacting the ban on most non-compete agreements.
Florida Judge Invalidates FTC Non-Compete Rule
A Florida federal district court judge recently struck down the FTC's non-compete rule. However, the court's narrow ruling applies only to the Florida real estate agency involved in the lawsuit. Nonetheless, the court found that under the “major questions” doctrine, the FTC exceeded its authority to issue the non-compete rule. The major questions doctrine is a legal theory providing that federal agencies may not address questions or issue rules concerning matters of “extraordinary economic and political significance” without explicit permission from Congress to do so.
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