Legal Alert: Federal Court Strikes Down FTC’s New Non-compete Ban
A new rule promulgated by the Federal Trade Commission purporting to ban most non-compete agreements was struck down by a Federal District Judge in Texas. The ruling comes just two weeks before the new rule was set to go into effect.
By way of background, the FTC had sought to prohibit most non-compete clauses, defined very broadly to mean a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from: (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii) operating a business in the United States after the conclusion of the employment that includes the term or condition.
Almost immediately after publication of the new rule, several legal challenges were brought, including the Texas lawsuit. In July 2024, the Texas court entered a preliminary injunction, temporarily blocking the FTC from enforcing the rule; however, that injunction only applied to the litigants in that case. Yesterday, the court entered final judgment in the case in favor of the challenger holding that the rule itself was invalid. Unlike the preliminary injunction, the court’s August 20 ruling sets aside the new FTC rule nationally. While the FTC could choose to appeal this decision, for now, non-compete agreements continue to be valid if they were otherwise enforceable under relevant state law.