Michael Best reports that the rule proposed by the Federal Trade Commission (FTC) that would have prohibited almost all non-compete agreements was found to be invalid an unenforceable.
On August 20, 2024, the United States District Court for the Northern District of Texas (“Court”) granted summary judgment to a group of plaintiffs, including Ryan LLC and the United States Chamber of Commerce, and held that the FTC’s Rule banning most non-competition agreements, which was to go into effect on September 4, 2024, is invalid and unenforceable.
Importantly, the Court held that its decision invalidating and setting aside the FTC Rule has nationwide effect. Accordingly, the Court concluded: “The Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.” A link to the FTC Rule is here. A link to the Court Decision is here.
The Court found that the FTC Rule is in excess of the FTC’s statutory authority, and that the FTC Rule is “arbitrary and capricious.” On this issue, the Court explained that the FTC Rule “imposes a one-size-fits-all approach with no end date, which fails to establish a rational connection between the facts found (by the agency) and the choice made.” The Court also opined that the FTC’s Rule “prohibits entering or enforcing virtually all non-competes – instead of targeting specific, harmful non-competes,” and this renders it arbitrary and capricious.
As a result of this ruling, no action is required on the part of businesses potentially affected by the FTC Rule. The notices contemplated under the FTC Rule do not need to be sent. Businesses do not need to stop utilizing or issuing their non-compete agreements.
Source: FTC Rule Banning Noncompetes Invalidated Nationwide – Michael Best & Friedrich LLP
