Non-Compete Rule Blocked

As a follow up to last week’s newsletter, on August 20, 2024, Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled that the Federal Trade Commission (FTC) lacks legal authority to implement its “non-compete” rule.  As we have previously alerted you in the below updates, on April 23, 2024, the FTC voted 3-2 along political party lines to approve a new rule that essentially banned all non-competes for employees and independent contractors.  A tax firm, Ryan LLC, sued to block the rule in April.  The U.S. Chamber of Commerce later joined the case as a plaintiff, as did the Business Roundtable, and two other business groups.  Judge Brown concluded that the FTC exceeded its statutory authority in promulgating the rule and that the rule itself was arbitrary and capricious.  Therefore, the rule is considered unlawful and, for the moment, is now set aside (i.e., not enforceable).

Per the New York Times reporting that afternoon, Victoria Graham, an FTC spokeswoman, said that the FTC would “keep fighting to stop non-competes that restrict the economic liberty of hardworking Americans.”  Ms. Graham is further reported to have said that the FTC is “seriously considering a potential appeal, and today’s decision does not prevent the FTC from addressing non-competes through case-by-case enforcement actions.” This does leave open the possibility of further review by higher courts.  But, for now, there is a reprieve, and the rule is not enforceable.