A federal district court in Texas has issued an order overturning a recent Federal Trade Commission (FTC) rule that bans most non-compete agreements. As a result, the rule will not take effect as scheduled September 4.
The U.S. District Court for the Northern District of Texas ruled August 20, 2024, in Ryan LLC v. FTC that the FTC’s non-compete rule, published in the Federal Register May 7, 2024, is unlawful. The court found that the FTC exceeded its statutory authority in implementing the rule and that the rule is arbitrary and capricious in violation of the federal Administrative Procedures Act (APA). The Northern District of Texas issued an order permanently blocking the rule from taking effect. The rule is on indefinite hold pending a likely appeal by the government.
Many employers use non-compete agreements to prevent a former employee from exploiting the employer’s proprietary information or trade secrets when joining a competitor or starting a competing business.
The court’s order does not affect state and local laws that bar or regulate non-compete agreements.