Yesterday afternoon, the U.S. District Court for the Northern District of Texas struck down the Federal Trade Commission’s regulation banning noncompete agreements, which was set to go into effect on September 4, 2024. In a move predicted by many observers (and signaled by the court in an earlier, narrower preliminary injunction ruling), Judge Ada Brown ruled that the FTC exceeded its statutory authority in promulgating a substantive rule, like the noncompete ban, with respect to unfair methods of competition. Additionally, the court found the FTC’s rule is “unreasonably overbroad without a reasonable explanation” and because the FTC did not consider a more narrowly-crafted rule, Judge Brown ruled that the ban on non-compete agreements was “arbitrary and capricious.” The court’s ruling is permanent and extends nationwide. The FTC has indicated that it is considering an appeal of this decision to the Fifth Circuit Court of Appeals. The FTC also indicated it may attack noncompetes through case-by-case enforcement actions.

As a result of this ruling, employers no longer need to move toward compliance with the ban’s September 4, 2024, implementation date – and existing noncompete agreements will remain in effect. However, these agreements remain subject to a wide range of state and local laws limiting or forbidding the use of noncompete restrictions in the employment context.

We encourage clients to reach out for further guidance. For more information, please contact David Robinson, Jack Finklea, Prasad Sharma, Don Vogel, Sari Pettinger, or Alaina Hawley.