Court Case Alert: Texas District Court Strikes Down FTC's Ban on Non-Compete Clauses

     On August 20, 2024, a federal district court in Texas struck down the Federal Trade Commission’s rule banning non-compete clauses in agreements between employers and workers.  As we discussed in a prior GovCon Bulletin™ article, last month that court in Ryan LLC v. FTC granted a preliminary injunction postponing the effective date of the FTC’s rule, which was set to occur on September 4, 2024, but the court’s decision only blocked the FTC from enforcing its rule on the parties in the case.  Yesterday’s final ruling by the district court now imposes a permanent nationwide injunction that prevents the FTC from enforcing the ban on any company.

     According to the district court, the FTC does not have statutory authority to issue a substantive rule regarding unfair methods of competition, like its rule banning non-compete clauses, and the FTC’s ban itself was arbitrary and capricious because it was unreasonably broad without a reasonable explanation from the FTC. 

     Responding to the ruling, a spokesperson for the FTC stated that the agency is considering a potential appeal.

     Although the district court’s ruling now gives companies a reprieve - pending any appeal and subsequent reversal - from the FTC’s federal ban on non-compete agreements, government contractors, nevertheless, should be mindful of state and local rules and state court decisions that may limit the permissible scope of non-compete clauses.