On August 20, 2024, Federal District Judge Ada Brown, of the U.S. District Court for the Northern District of Texas, issued a judgment that sets aside the U.S. Federal Trade Commission’s (“FTC”) rule (“Rule”) ban on non-compete clauses in employment agreements nationwide. Plaintiffs argued that: (i) the FTC exceeded its statutory authority; (ii) that the Rule was product of an unconstitutional exercise of power and (ii) the FTC’s acts were arbitrary and capricious. The Court concluded that the FTC lacks statutory authority to promulgate the Rule and, as such, it is considered arbitrary and capricious.
The FTC had previously introduced a Rule to prohibit non-compete clauses in employment agreements
arguing that such agreements unfairly restrict work mobility and suppress wages for workers across the United States. The proposed Rule was expected to come into effect on September 4, 2024, but with this judgment new and existing non-compete clauses will continue to be enforceable.
The FTC maintains that it had the authority to approve the Rule as part of its duty to ward off unfair
methods of competition and could appeal the court judgment to the Federal Circuit Court.