Texas Federal Court Blocks the Federal Trade Commission’s Nationwide Ban on Non-Nompetition Agreements

A Texas federal court recently blocked the Federal Trade Commission’s nationwide ban on non-competition agreements, allowing employers to maintain such agreements as permitted by state laws. The ruling comes just weeks before the rule was set to take effect on September 4, eliminating uncertainty for employers and employees. Although there’s a slight chance the rule could be revived by a federal appeals court, immediate action is unnecessary.

What Happened?

The U.S. Chamber of Commerce and other business groups sued the FTC to stop the ban. Judge Ada Brown of the Northern District of Texas ruled that the FTC overstepped its authority, asserting that Congress only empowered the agency to issue procedural rules, not broad substantive ones. She also deemed the rule “arbitrary and capricious,” criticizing its one-size-fits-all approach and lack of consideration for the benefits of non-competes.

Nationwide Impact of the Ruling

Judge Brown’s decision applies to all employers, not just those involved in the lawsuit, thereby lifting uncertainty across the country. Earlier, different court rulings created confusion regarding the rule’s enforceability, but her latest ruling clarifies that the FTC’s ban is invalid nationwide.

Post-Chevron Changes

This ruling marks a significant moment post-Chevron, as the Supreme Court’s recent decisions have allowed courts to question agency authority more readily. Judge Brown’s analysis reflected this shift, indicating that courts can now check agency actions more strictly.

What’s Next?

The FTC might appeal this decision, potentially seeking an emergency order to enforce the rule. However, any appeal would likely face challenges in the business-friendly 5th Circuit Court of Appeals, making the resurrection of the rule unlikely.

What Should Employers Do?

Employers and employees can now return to state-specific rules regarding non-compete agreements. It’s crucial to ensure that these agreements comply with applicable state laws.

If you have questions, reach out to Alonso & Wirth.