Northern District of Texas temporarily enjoins FTC from enforcing its non-compete ban

It’s not surprising that a federal court enjoined the Federal Trade Commission’s (FTC) non-compete ban. Many non-compete lawyers, including me, predicted that the FTC ban on worker non-compete agreements would be struck down.  And the first court to rule on the issue, albeit, in a preliminary ruling, indicated that it will likely rule that the FTC’s ban is invalid.

Northern District of Texas Judge Ada Brown granted a preliminary injunction preventing the rule from taking effect in September, ruling that the FTC “exceeded its statutory authority in promulgating the noncompete rule, and thus plaintiffs are likely to succeed on the merits” of their request to strike down the ban. 

It appears that at least one court is poised to pull down the ban. And, given the U.S. Supreme Court’s late June decision courts are now instructed to interpret statutes using their own independent t judgment without deference to an agency’s interpretation. The high court overruled its previous policy of deferring to reasonable agency determinations under Chevron v. Natural Resources Defense Council.  It now seems inevitable that Judge Brown’s anticipated striking down the ban will be upheld by 5th U.S. Circuit Court of Appeals, and the U.S. Supreme Court, if it gets that far. While Judge Brown limited her injunction to the parties in front of her, other courts will likely do the same or even apply their order nationwide.

As a practical matter, employees and business should and will consider FTC’s ban void, unless something surprising happens.

One significant cautionary note – this only applies to federal efforts to limit non-competes. It has no effect on the continuing trend at the state legislative level to reign in non-competes. Considering what appears to be stalled efforts at the federal level to limit non-competes, pressure on state legislators to act will only increase. I doubt my state, Texas, however, will take any such action soon. Outside of Texas, lawyers should still stay tuned.

 

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