On August 20, 2024, a federal court in Texas issued a nationwide injunction barring the widely criticized Federal Trade Commission (FTC) non-compete prohibition rule from taking effect. As previously reported on April 25, 2024, the FTC rule would have invalidated all existing non-compete agreements to which employees were subject and would have prohibited employers from using non-compete agreements going forward, with limited exceptions. The rule was scheduled to take effect on September 4, 2024. The Texas court found that the FTC exceeded its authority when it adopted the rule and also concluded that the rule itself was arbitrary and capricious. Based upon these findings, the Texas court set aside the rule in its entirety and issued a permanent injunction, prohibiting the rule from taking effect. The injunction applies nationwide and is not limited to the specific parties to the litigation. Accordingly, the FTC cannot enforce the rule against any employer absent an order reversing the August 20, 2024 decision on appeal.
Prior to this decision last week, employers were grappling with the effect of limited and conflicting preliminary rulings in multiple courts concerning the enforceability of the FTC rule. The same Texas court had previously entered a limited temporary restraining order (TRO) that was applicable only to the specific parties in that litigation and refused to extend the TRO on a nationwide basis as had been requested by the plaintiffs. A separate federal court in Pennsylvania then issued a conflicting decision, finding that the rule was within the FTC’s authority. A third federal court in Florida then issued a decision similar to the original decision from the Texas federal court, entering a preliminary injunction, but limiting the injunction to only the parties involved in that litigation. These conflicting decisions left employers wondering whether the FTC rule could (or would) be applied to them.
Much to the relief of employers nationwide, last week’s decision from the Texas federal court brought resolution to this uncertainty and made clear that the FTC rule will not take effect on September 4, 2024 and that the rule cannot be enforced by the FTC against any employer in any jurisdiction.
The FTC will likely appeal this decision, such that the legal challenges will continue, and it is possible that the question of the validity of the FTC rule may ultimately reach and be decided by the U.S. Supreme Court. But for now, employers can take a deep breath, chalk this one up as a win, and continue with business as usual.
For more information, please contact Theresa Phelps or John Gazzoli, members of our Firm’s labor and employment group.