Federal Judge Blocks FTC Non-Compete Ban, Leaving Agreements Enforceable

On August 20, 2024, U.S. District Judge Ada Brown of the Northern District of Texas struck down a proposed rule by the United States Federal Trade Commission (FTC) that sought to impose a nationwide ban on non-compete agreements. Ryan, LLC v. FTC, –F. Supp.3d – (N.D. Tex., Aug. 20, 2024). The decision halts what would have been a significant shift in employment law across the country had the rule taken effect.

 

In granting summary judgment in favor of the plaintiff-intervenor, Judge Brown found that the FTC lacked the statutory authority to implement a nationwide ban on all non-compete agreements. She further found that even if the FTC did have such authority, it failed to adequately justify its decision to impose a blanket ban. According to Judge Brown, “the Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition … instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.”

 

The proposed rule, which was scheduled to take effect on September 4, 2024, aimed to eliminate what the FTC described as an “unfair restraint” on employees nationwide. FTC Chair Lina M. Khan defended the initiative, arguing that non-compete clauses depress wages, stifle innovation, and diminish the American economy.

 

“Non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned,” Khan stated. She further emphasized that “the FTC’s final rule to ban non-competes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

 

Despite Judge Brown’s ruling blocking the proposed FTC rule from taking effect, the FTC still retains the authority to challenge non-compete agreements on a case-by-case basis under federal competition law. This means that while the broad nationwide ban has been struck down, the Commission can continue to address individual cases where non-competes may violate existing antitrust regulations.

 

Without the new rule in place, most non-compete agreements remain enforceable, with their validity largely dependent on a court’s assessment of the reasonableness of each agreement. Generally, a court will evaluate factors such as the duration of the non-compete, its geographic scope, and the extent of the restrictions imposed on the individual in order to determine reasonableness.

 

According to an FTC spokesperson, the FTC is “seriously considering a potential appeal.”

 

Silverman Thompson provides employment counseling, including advice regarding non-competes, and regularly litigates non-compete matters in Maryland and across the country.  To find out more about how our attorneys may be able to assist you here, please e-mail or call Bill Sinclair at bsinclair@silvermanthompson.com or at (410) 385-9116.