FTC Rule Banning Non-Competes Struck Down in Ruling That Applies Nationwide

The following blog is an update to an original post by Attorney Nicole Proesch, "FTC Adopts Non-Compete Ban and Opens the Floodgates," published on April 25, 2024, after the U.S. Federal Trade Commission adopted a final rule on April 23, 2024, that would have banned many non-compete clauses and other restrictive covenants between private businesses and their employees and independent contractors. 

The Federal Trade Commission’s Rule banning non-compete agreements was struck down on August 20, 2024. This is a victory for businesses who rely on such agreements to protect against unfair competition by former employees. The Rule was set to go into effect on September 4, 2024, so this decision comes just in time to allow employers to stop efforts to comply with it. Judge Brown’s ruling applies nationwide, but does not impact state laws limiting or banning non-competes.  It’s back to business-as-usual with non-compete agreements. 

Judge Ada Brown, a Trump nominee in the federal district court for the Northern District of Texas, granted summary judgment for the plaintiffs, holding the FTC Rule was unlawful.  She held Congress did not give the FTC the authority to issue rules with respect to unfair methods of competition under the FTC Act. Judge Brown also held the FTC’s Rule to be arbitrary and capricious, unreasonable, and not reasonably explained. Per her findings on that point, she said the FTC relied on one-sided evidence of the economic impact of non-competes, failing to consider the positive benefits of non-competes. Judge Brown also said the FTC should have targeted specific non-competes that are harmful rather than prohibit all non-competes. Finally, she said the FTC should have considered less disruptive alternatives and other exceptions rather than completely banning non-competes. Judge Brown did not address plaintiff’s third argument that the Rule was unconstitutional because the FTC is unconstitutionally insulated from presidential control.