FTC Noncompete Ban Officially Blocked by Federal Court

By John S. Gannon - Skoler Abbott P.C.

August 21, 2024

As we previously reported, the Federal Trade Commission (FTC) issued a rule earlier this year that completely banned noncompete agreements for nearly all workers across the country.  The rule was set to take effect on September 4, 2024.  As we noted in that blog post, the FTC’s ban was being challenged by a number of defendants, including the U.S. Chamber of Commerce (Chamber).

On August 20th, in the legal challenge involving the Chamber, a judge from the U.S. District Court for the Northern District of Texas issued a ruling that will effectively block the FTC’s noncompete rule.  The Court ruled that the FTC’s noncompete ban was “unreasonably overbroad,” and lacked “reasonable explanation.”  Importantly, the Court enjoined the FTC from enforcing the rule on a nationwide basis, meaning that unless the decision is immediately reversed by an appellate court (which is incredibly unlikely), the noncompete ban will not go into effect on September 4.

Businesses that were planning on sending notices to workers informing them that their noncompetes are no longer valid—as required by the FTC’s rule—can put this task off, at least for now.  While the Chamber was successful yesterday in blocking the FTC’s rule, the FTC can (and probably will) appeal the decision.  The FTC said in a statement:  “We are disappointed by [the Court’s] decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages.”  The FTC added that the agency was “seriously considering a potential appeal.”

Finally, it is worth noting that a Court in a different jurisdiction (Pennsylvania) ruled a few weeks ago that the FTC should not be enjoined from enforcing the noncompete ban as to the defendants in that case.  Given the conflicting court decisions on this issue and the likelihood of appeals, this area of the law can be confusing and difficult to navigate.  Contact employment counsel if you have questions about the enforceability of your noncompete or other employment agreements in light these decisions and the actions of the FTC.

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