Federal Judge in Texas Blocks FTC's Noncompete Rule
On August 20, 2024, the United States District Court for the Northern District of Texas issued an order setting aside the Federal Trade Commission’s (FTC) ban on employee noncompetes (the “Noncompete Rule”). While the same court had previously held the Noncompete Rule to be unlawful, the court had declined to order nationwide relief — until now. With this latest ruling, however, the Court provides universal, nationwide relief from the Noncompete Rule.
The court’s decision provides some much-needed certainty to the employer community. Earlier this summer, the court held that the Noncompete Rule exceeded the FTC’s statutory authority and was arbitrary and capricious. However, the court only granted preliminary relief to the specific plaintiffs named in the lawsuit — a tax preparation firm and four business associations. Then, a few weeks later, a different federal court in Pennsylvania sided with the FTC, finding the Noncompete Rule to be a valid exercise of the FTC’s authority. Most recently, on August 14, 2024, the Middle District of Florida sided with the Texas court and similarly limited its order blocking the Noncompete Rule to only the specific plaintiff in the case.
These inconsistent rulings left employers in a state of complete uncertainty, not knowing whether their noncompete agreements would remain enforceable in just a few weeks. While some employers began preparing for the logistical headache of gathering all the information they would need to comply with the notice requirement, many others held their breath and waited for the Texas court to issue its final ruling.
Now, based on the Texas court’s final order concluding that the Noncompete Rule is “unreasonably overbroad and without reasonable explanation,” employers have some certainty for the foreseeable future. They are no longer required to notify current and former employees that their noncompetes are unenforceable — a deadline that was otherwise just a few weeks away.
The court’s order is not necessarily the final chapter in this story, however. The FTC will almost certainly appeal the ruling to the Fifth Circuit Court of Appeals. For the foreseeable future, however, employers can continue enforcing their noncompetes in accordance with state laws.
