Judge’s Partial Block of FTC Non-Compete Rule Foreshadows Invalidation

A federal judge in Texas partially blocked the FTC’s rule that bans almost all non-compete agreements, but only for the plaintiffs in the case. For now, the rule is still scheduled to go into effect September 4th for all other parties. 

The judge’s decision: Judge Ada Brown of the Northern District of Texas found that "the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority" to issue the non-compete ban. The judge then issued an injunction temporarily blocking the rule and postponing its effective date for the organizations who brought the lawsuit - a Texas tax accounting firm and the U.S. Chamber of Commerce, Business Roundtable, and Texas Association of Business - but did not block the rule for the organizations’ members.  

What it means: The rule remains scheduled to go into effect September 4th for everyone except the organizations that brought the lawsuit. However, the court is expected to issue another decision by August 31 preventing the rule from going into effect at all. 

Any decision fully blocking the rule will almost certainly be appealed. Whether the block will be upheld may depend on which federal Court of Appeals hears the case – a decision that is likely months away.   

Employer considerations: Nearly 90% of HR Policy members indicated they would continue issuing new non-compete agreements up until the rule’s effective date. Employers should use this time to conduct a thorough audit of their use of restrictive covenants and to identify compliance risks. Even if the FTC’s rule is fully struck down, restricting the use of non-competes remains a priority for both state and federal lawmakers. Now is the time to reevaluate options for protecting investments in talent and proprietary information.  

Stay ahead of policy changes affecting human capital strategies by joining your peers at our Washington Policy Conference on September 10 and 11. Former FTC Commissioner Christine Wilson and Lori D. Goodman from Freshfields will provide insights into the latest state laws and regulations, including the changing legal environment surrounding non-compete agreements. Register and view the full agenda here. 

See also: HRPA’s report on Preserving the Responsible Use of Non-Compete Agreements, part of a series on Advancing the American Workforce.