The FTC’s ban on noncompete agreements has been struck down for all employers nationwide just two weeks before it was to take effect. The key points regarding the Texas federal district judge’s rulings are:

• All existing and new noncompete agreements consistent with state law are still effective.

• Employers will not have to comply with the FTC’s ban by September 4, 2024, as originally scheduled.

The court struck down the rule for two reasons.  First, the FTC exceeded its statutory authority in promulgating the substantive rule because Congress only authorized it to issue procedural, not substantive, rules to address unfair methods of competition.  Second, the rule was arbitrary and capricious because it was unreasonably overbroad without a reasonable explanation.  Importantly, the court’s ruling applies to all employers across the country.

The FTC could appeal the decision, but that would put the case in the hands of the United States Court of Appeals for the Fifth Circuit, which is virtually certain to affirm it.  Therefore, it is highly unlikely that the rule will ever become law.  After some anxious waiting, employers can turn their attention to complying with state law restrictions on noncompete agreements and cease worrying about the FTC Ban.

Liskow employment lawyers Tommy McGoey and Ellie George will continue to monitor the legal landscape regarding noncompete agreements and are available to answer any questions you might have about the recent ruling. For further inquiries, visit our Labor & Employment practice page.

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