Texas Federal Court Blocks FTC Non-compete Rule | Legal Update

On August 20, 2024, a Texas federal court blocked the Federal Trade Commission’s (“FTC”) rule banning most employment non-compete agreements.  The Court imposed a nationwide injunction blocking enforcement of the rule.  Although non-competes remain valid as before, stay tuned.   There is likely to be an appeal of the lower Court’s decision.

To recap, earlier this year, the FTC issued it “Final Rule” invalidating most employment non-compete agreements.  The FTC, which enforces federal anti-trust law, viewed employment non-competes as a form of unfair competition.  The FTC’s final rule was sweeping in scope.  The rule blocked most new employment-based non-compete agreements.  Existing non-compete agreements, except those with so-called “senior executives,” would also have been rendered unenforceable.  The FTC’s rule also would have required employers to notify those with existing non-competes that their non-competes were unenforceable.

Although there were multiple court challenges to the Final Rule, Judge Ada Brown of the U.S. District Court on the Northern District of Texas set the FTC rule aside.  Judge Brown called the Final Rule “arbitrary and capricious” and found, among other things, that the FTC lacked statutory authority to promulgate the Final Rule.

While the Court’s ruling is likely going to be appealed, that may take some time.  For now employers are not required to issue notices or change their employment non-compete strategies.

If you have any questions or would like further assistance in this area, please contact our Labor and Employment practice group at kulrich@ssdlaw.com or 937-222-2500.

This material is not intended as legal advice and is for general informational purposes only.  Those seeking legal advice should consult directly with legal counsel regarding their specific facts and circumstances.