FTC’s Noncompete Ban Blocked by Texas Federal District Court

Barely two weeks before it was scheduled to take effect, the Federal Trade Commission’s rule banning non-compete agreements was enjoined nationwide by the Northern District of Texas. Judge Ada Brown granted a motion for summary judgment filed by the plaintiffs challenging the rule, including a tax services firm and the United States Chamber of Commerce. Judge Brown ruled that the FTC lacked “substantive rulemaking power with respect to unfair methods of competition.” In July, the court had enjoined enforcement of the rule only against the parties involved in the case.

The FTC rule would render the vast majority of non-compete clauses unenforceable, with a limited carveout for those restricting senior executives. An estimated 30 million American workers are bound by non-competes, according to the FTC. The FTC argued that Section 6(g) of the FTC Act empowered the agency to “’make rules and regulations for the purpose of carrying of the provisions of’ the Act, which include the Act's prohibition of unfair methods of competition,” when it issued the rule in April.

An FTC spokesperson announced that, “[w]e are seriously considering a potential appeal” of the ruling and indicated the agency’s plan to continue to address noncompete clauses through “case-by-case enforcement actions.” If the agency files appeal, it will be heard by the Court of Appeals for the Fifth Circuit. Meanwhile, the United States Chamber of Commerce celebrated the ruling as “yet another decision that makes the case against regulatory overreach.”