Texas Judge Issues Nationwide Order to Set Aside FTC Non-Compete Rule

On August 20, 2024, United States District Judge Ada E. Brown of the Northern District of Texas issued an Order to Set Aside the Federal Trade Commission’s (FTC) Non-Compete Rule.  Ryan LLC, Chamber of Commerce et al. v. Federal Trade Commission, U.S.D.C. N.D. Texas, Case No. 3:24-cv-986. After a thorough analysis, the court determined that the appropriate remedy was to set aside, on a national basis, the FTC’s rule that would essentially ban most non-competition agreements in employment.

In April 2024, the FTC had issued its Non-Compete Rule, declaring that non-compete clauses in employment agreements, with very few exceptions, are “unfair methods of competition” under §5 under the FTC Act, thereby constituting a violation of the FTC Act. The FTC’s Non-Compete Rule was to take effect on September 4, 2024, which would have rendered most non-compete agreements across the nation unenforceable.

In response to the FTC rule, the plaintiffs in the case sued the FTC, asserting the agency acted without statutory authority, and that the FTC’s actions were arbitrary and capricious.

In her 27-page order, the court granted summary judgment to the plaintiffs, concluding   that the FTC promulgated the rule in excess of its statutory authority. The Court held the FTC rule is “arbitrary and capricious” – essentially it is “unreasonably overbroad without a reasonable explanation.” The court further found the rule was based on “inconsistent and flawed empirical evidence,” that it failed to consider the “positive benefits of non-compete agreements, disregarded the substantial body of evidence” supporting non-compete agreements, and failed to address and consider alternatives to the sweeping rule.

Another federal court in Pennsylvania found the FTC rule to be lawful and enforceable.  The FTC will very likely appeal the Texas decision, but for now (and subject to further court orders), the FTC tule against non-compete agreements has been set aside and will not go into effect. Stay tuned for further developments.