The Federal Trade Commission’s near total ban on non-competes was struck down yesterday by a federal court in Texas; the court’s ruling has nationwide effect. The federal regulation banning non-competes will not be enforced or take effect on September 4th as intended.
The ruling decided lawsuits filed by Texas tax firm Ryan LLC, as well as the U.S. Chamber of Commerce and other business groups in Texas, challenging the legality of the FTC regulation.
The FTC rule would have prohibited U.S. employers from entering into new non-competes and enforcing most existing non-compete agreements on September 4, 2024. It also would have required employers to notify workers subject to unenforceable non-competes that their non-competes would not be enforced.
The court found the FTC exceeded its rulemaking authority. “The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition ... instead of targeting specific, harmful non-competes, renders the rule arbitrary and capricious,” the court reasoned.
While the FTC has indicated it is considering appealing the ruling, the 5th Circuit Court of Appeals that would hear the appeal is unlikely to reverse the ruling. Recent rulings from the U.S. Supreme Court, skeptical of federal agency rulemaking, suggest it too would be unlikely to find in favor of the FTC.
For now, non-competes will remain enforceable where permitted under state law. The Connecticut General Assembly has raised bills banning non-competes in every session over the past several years, so far without success. Employers can anticipate a non-compete ban being raised in the Connecticut legislature when it reconvenes in February, 2025.
Editor’s Note: We will discuss these developments and more in our Annual Legislative Update on September 10, 2024. To enroll online click here, or enroll by contacting Jessenia Narvaez, Office Manager, at jessenianarvaez@robertnoonan.com.
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