FTC noncompete ban blocked—for now

by John T. Below and Cameron D. Ritsema, Bodman PLC

In a widely anticipated ruling, Judge Ada E. Brown of the U.S. District Court for the Northern District of Texas sided with the U.S. Chamber of Commerce and a Texas-based tax firm to block the Federal Trade Commission’s (FTC) final rule banning most noncompete agreements, writing that the rule is “unreasonably overbroad without a reasonable explanation” and that “the FTC exceeded its statutory authority in implementing” the rule. Ryan LLC et al., v. Federal Trade Commission, 3:24-CV-00986-E, (N.D. Tex., Aug. 20, 2024).

The FTC’s final rule was scheduled to go into effect on September 4, 2024, and would have invalidated millions of existing noncompete agreements and precluded the adoption of new restrictive covenants. Now, the effective date is postponed, indefinitely.

Following Judge Brown’s nationwide injunction, and in a victory for business, employers may continue to implement noncompete agreements and protect against unfair competition and misappropriation of confidential and proprietary information.

This saga isn’t yet over. We anticipate that the FTC will appeal Judge Brown’s ruling to the U.S. 5th Circuit Court of Appeals (and beyond).

What does this mean?

Here’s what you need to consider as a result of this ruling: