FTC Non-Compete Rule Set Aside

FTC’s Non-Compete Rule Set Aside by Texas Federal Court

The most recent decision in the ongoing battle over the enforceability of the Federal Trade Commission’s (“FTC”) rule banning non-compete agreements (the “Rule”) has resulted in the Rule being deemed unenforceable across the country. In her ruling late yesterday, U.S. District Judge for the Northern District of Texas Ada Brown found that the FTC had exceeded its authority in promulgating the Rule. In doing so, Judge Brown granted summary judgment to the Texas based tax firm that had challenged the Rule in a lawsuit that was later joined by business groups including the U.S. Chamber of Commerce. As a result of Judge Brown’s decision, the Rule has been struck down and the FTC is prohibited from enforcing it nationwide.

The Rule, which was issued in April, would have outlawed non-compete agreements in most employment situations and required employers to inform workers previously subject to non-compete agreements that they would no longer be enforcing those agreements. The Rule was scheduled to go into effect on September 4. The Texas lawsuit is just one of several cases currently litigating the legality of the Rule. The FTC can appeal the August 20 decision to the Fifth Circuit Court of Appeals, and the litigation could potentially continue to the U.S. Supreme Court, especially if other courts across the country rule differently than Judge Brown, which has already been the case. For instance, a federal court in Pennsylvania previously declined to grant a preliminary injunction in a case challenging the Rule, unlike Judge Brown in the Texas case. If the FTC chooses not to appeal, which is unlikely in our opinion, the decision will keep the Rule from being enforced across the country.

The bottom line for employers is that properly drafted non-compete agreements may continue to be used as a means of preventing employees to work for competitors.

If you have questions about how this development may impact you, please contact your FGKS law attorney today. You can read the Texas court’s decision here.