Non-Competes Not Dead Yet: Federal Judge Blocks FTC's Ban With Nationwide Injunction

The clock was supposed to strike midnight for most non-competition agreements on September 4, 2024. That was the effective date for the Federal Trade Commission’s (FTC) Final Rule, adopted in April, that would have rendered the vast majority of existing and future non-competes void and unenforceable. But just weeks before that date, the FTC’s ban was put on hold indefinitely when a federal judge issued a nationwide injunction blocking the Final Rule’s implementation and enforcement.

Trump-appointed U.S. District Judge Ada Brown of the U.S. District Court for the Northern District of Texas issued that injunction on August 20, 2024 after previously issuing a narrower injunction that only barred enforcement of the rule as to the plaintiffs in the case. In both instances, Brown ruled that the FTC had exceeded its authority with the ban.

"The Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC's promulgation of the Rule is an unlawful agency action," Brown wrote. "(The rule) is hereby SET ASIDE and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter."

The injunction stands in contrast to a ruling from a federal court in Pennsylvania earlier this summer that found the FTC properly issued the Final Rule. The FTC has indicated that it is evaluating whether to appeal Brown's ruling and has made clear that it will continue its efforts to challenge individual non-competes that it believes violate existing law.

"We are seriously considering a potential appeal, and today's decision does not prevent the FTC from addressing non-competes through case-by-case enforcement actions," FTC spokesperson Victoria Graham wrote in a statement.

For employers, the immediate impact of the ruling is that, for now, at least, existing non-compete agreements remain valid and enforceable, and employers are free to enter into new non-competes (subject to applicable state laws and judicial interpretations). Additionally, employers do not need to provide employees with notice about their rights and the status of existing non-competes as required by the Final Rule.

If you have questions or concerns about the impact of this injunction on your business, please contact one of the Labor and Employment Law attorneys at Latimer LeVay Fyock.