On Tuesday, the FTC's non-compete rule was set aside. Consequently, the non-compete ban cannot be enforced and will not become effective on September 4, 2024.
This is an update to our prior article regarding the Federal Trade Commission's attempt to ban non-competes (the "Rule") and our article discussing decisions of the U.S. District Court for the North District of Texas and the District Court for the Eastern District of Pennsylvania regarding preliminary injunctions of the enforcement of the Rule. Judge Ada Brown of the U.S. District Court for the North District of Texas granted the plaintiffs' motion for summary judgment and entered a final ruling on the merits setting aside the Rule on August 20, 2024. Judge Brown followed the analysis in her prior ruling regarding the preliminary injunction and held that (1) the FTC lacked the statutory authority to issue the non-compete rule and (2) even if the FTC had such authority, the rule was arbitrary and capricious. In the ruling, she emphasizes that the decision has nationwide effect, is not party-restricted, and affects persons in all judicial districts equally. Therefore, the Rule will not take effect on September 4, 2024, and cannot be enforced.
As mentioned in our last article, it is expected that the FTC will appeal. The appeal would be to the Fifth Circuit, which is more conservative and has expressed skepticism regarding governmental agency authority in recent opinions. As such, it appears likely that Judge Brown's decision will be affirmed. The appeal process could, however, take a year or longer. If affirmed at the Fifth Circuit, the FTC could appeal to the U.S. Supreme Court. Even before the Supreme Court, the odds are greater that the decision will be affirmed rather than overturned. Its decisions show that the Supreme Court has aggressively curtailed the power of administrative agencies in its last term.
In practice, this means that the current rules regarding non-competes under state laws across the country will remain in place. Please contact us today to learn more about current issues when using restrictive covenants.
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