A federal district court judge has issued a nationwide injunction that prevents the FTC noncompete ban from taking effect. United States District Judge Ada Brown of the Northern District of Texas found the FTC lacks the authority to ban allegedly unfair methods of competition through the adoption of broad rules. The court therefore enjoined the FTC's noncompete ban from taking effect.
This spring, the FTC issued a final rule that sought to ban the use of virtually all noncompete agreements by employers nationwide. We have previously written about the rule here. The rule not only prohibited the use of explicit noncompete agreements, but also prohibited other arrangements that purportedly function to prevent a worker from seeking or accepting work with another person after their current employment ends. The final rule was slated to take effect on September 4.
The rule was met with multiple legal challenges including one by tax services firm Ryan LLC, which was joined by the U.S. Chamber of Commerce. In July, Judge Brown issued a temporary injunction that prevented the FTC from enforcing the rule, but only as to the parties to the Ryan LLC case. Now, the court has issued a permanent injunction that prevents the rule from taking effect against anyone on a nationwide basis.
In its ruling, the court found the FTC lacked the authority to issue the noncompete ban. But even if it had the authority, the court found the FTC could not justify a sweeping ban of all noncompete agreements throughout the country. "The Commission's lack of evidence as to why they chose to impose such a sweeping prohibition . . . instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious," the court wrote.
The FTC is considering an appeal. But for now, employers are free to continue to utilize noncompete agreements with their workers when allowed by existing state law.
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