Texas Court Blocks FTC Ban On Noncompete Agreements

A Texas federal court has blocked the Federal Trade Commission’s (FTC) proposed nationwide ban on noncompete agreements, which was set to take effect on September 4. This ruling means employers can continue to enforce noncompetes according to state laws, as Fisher Phillips writes in a post on its website. The decision may be appealed, but the FTC rule is unlikely to be reinstated soon, according to the firm’s post.

The case was brought by a Texas employer, the US Chamber of Commerce, and other business groups. Judge Ada Brown of the Northern District of Texas ruled against the FTC, arguing that the agency exceeded its authority by issuing a substantive rather than a procedural rule. She also criticized the rule as “arbitrary and capricious,” noting that it was overly broad and failed to consider the benefits of noncompetes or alternative measures.

Judge Brown’s ruling has nationwide implications, setting aside the ban on noncompete agreements for all employers in the US. This decision is one of the first major cases demonstrating the courts’ increasing power to overrule agency actions following the Supreme Court’s recent decision in Loper Bright, which reduced the deference courts must give to agencies like the FTC.

Employers should now focus on ensuring their noncompetes comply with state laws and are tailored to critical employees, Fisher Phillips suggests. They should also track all existing restrictive covenants, as there is a slim chance the rule could be revived through an appeal. Additionally, employers should be aware that the FTC may still pursue targeted enforcement actions against noncompetes even if the nationwide ban remains blocked.

Read the latest article from Today’s General Counsel Columnist Jeffrey M. Cross to learn more about the judicial developments regarding the FTC noncompete ban.