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Federal Court Blocks FTC Final Rule on Non-Compete Clauses

Federal Court Blocks FTC Final Rule on Non-Compete Clauses

This blog revisits a blog post published by The Law Group of Northwest Arkansas on July 11, 2024.  Earlier this year, the Federal Trade Commission (FTC) voted to finalize a new rule to prohibit employers from enforcing non-compete agreements against workers on the basis that such agreements are an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act (FTC Act). The effective date, originally set for September 4, 2024, has been blocked by a decision out of the U.S. District Court for the Northern District of Texas.

The Federal Court Decision

On August 20, 2024, U.S. District Court Judge Ada Brown issued her final order in Ryan, LLC v. Federal Trade Commission. The order held that, among other things, the FTC did not have sufficient statutory authority to create rules to prevent unfair methods of competition Congress did not specifically give the FTC substantive rulemaking authority; the FTC Act did not give the FTC substantive rulemaking authority; and that regulations in the order were arbitrary and capricious. Specifically, Judge Brown stated that the rule was overly broad and should have been tailored to target only harmful non-competes as opposed to non-competes in general. As a result, the effective date of the September 4th deadline prohibiting non-compete agreements is no longer valid.

What Companies Should Know

Because the U.S. District Court for the Northern District of Texas is a federal court, the block on this rule applies nationwide for every company that would have been required to comply. While this decision may be appealed to the Fifth Circuit and then possibly to the United States Supreme Court, that process is very lengthy, and companies are not required to be in compliance with the FTC Rule in the meantime. However, unfair methods of competition are still a heavily discussed issue, and state courts and legislatures may make their own decisions regarding how best to prevent them. Companies should ensure that their non-compete agreements are not based in unfair methods of competition to ensure a thriving market.

 Questions About The FTC Final Rule or The Federal Court Decision?

If you have questions regarding the FTC Final Rule on Non-Compete Clauses or the U.S. District Court decision, The Law Group of Northwest Arkansas PLLC can help. Contact The Law Group of Northwest Arkansas PLLC  to schedule a free, initial consultation. You can contact us by using our online contact form or calling 479-439-9769.

Disclaimer: The Law Group of Northwest Arkansas PLLC (TLGNWA) provides general information about a variety of legal issues on this website as a public service. Information contained herein should not be considered legal advice on any specific matter. The use of information and reference links contained in this website do not constitute contractual, de facto, implied or any other form of attorney-client privilege or relationship. TLGNWA is not responsible for the use of information, forms, links, or documents contained in this website.

Due to the frequency and speed of changing laws, no guarantee is made as to the current validity or applicability of the information contained herein. Though we try to update information often, we recommend that readers with questions investigate current law or contact TLGNWA directly through our contact form or by calling (479) 334-3411.