Federal Judge Blocks FTC Non-Compete Rule, Nationwide

Today, a Federal Court in Texas issued a nationwide injunction blocking the FTC's proposed rule banning employment-related non-compete agreements. The FTC is considering its options, including an appeal to the Fifth Circuit Court of Appeals. But, for now, the FTC cannot enforce the non-compete rule against anyone in the U.S. 

The FTC's proposal has been considered by three different courts on motions for limited preliminary relief (with two blocking the rule and one upholding it, in each case limited to the specific plaintiffs), but the Texas court was the first to rule on the merits. The Texas court held that the FTC lacked the authority to issue substantive rules and, critically, ruled that the FTC's rule was arbitrary and capricious. And the Texas court's injunction applies nationally, not just to the plaintiffs in the case before it.

This is an important development, but surely not the last word on the issue. Companies should carefully monitor developments and should be prepared to respond to the possibility that the FTC's rule may, in the end, go into effect. But, for now, the chances that the FTC rule goes into effect shortly after Labor Day, as intended by the FTC, are much lower than before today's ruling. This is a welcome development in providing clarity about how and when to address the FTC's proposed rule, at least for the time being.

Judge Ada Brown of U.S. District Court for the Northern District of Texas ruled that the antitrust agency lacked authority to issue substantive rules related to unfair methods of competition, including the noncompete rule, which would have prohibited companies from restricting their employees’ ability to work for rivals. The push to adopt the rule is part of the Biden administration’s effort to crack down on practices that regulators argue are anticompetitive, unfairly constraining workers. Judge Brown had temporarily blocked the ban in July. Her decision on Tuesday renders that injunction permanent, and nationwide in scope.

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