Texas federal court halts Fair Trade Commission non-compete rule for all employers nationwide

At a glance

• On August 20, 2024, a federal court in Texas invalidated the Fair Trade Commision’s (FTC) rule banning nearly all non-competes for US workers, preventing its enforcement from September 4, 2024.
• The court ruled that the FTC lacked authority to create such rules and criticized the rulemaking process as arbitrary and capricious.
• The ruling applies nationwide, but state or local non-compete laws remain unaffected. An appeal is likely, but businesses currently do not need to comply with the rule’s requirements.

On August 20, 2024, a federal court in Texas granted summary judgment to the plaintiffs in Ryan LLC v. Federal Trade Commission, setting aside and rendering unenforceable the FTC rule banning nearly all non-competes for US workers. As a result, the rule will no longer take effect for any employer on September 4, 2024.

In reaching its decision, the court concluded both (i) that the FTC lacked the authority to promulgate substantive rules like the non-compete rule and (ii) that the agency’s rulemaking process for the non-compete rule did not support the breadth of the final rule or consider less disruptive alternatives, rendering the final rule arbitrary and capricious.

The same court had issued a limited preliminary injunction of the rule on July 3, 2024, which prevented enforcement of the rule only against the plaintiffs and intervenors in the case. This current ruling creates certainty by preventing application of the rule to all employers and on a nationwide basis.

An appeal of the decision is likely, but for now, businesses do not need to comply with any of the rule’s requirements – including provisions in the rule that would have required employers to send notices to impacted workers – unless or until the rule is reinstated on appeal.

The court’s ruling applies only to the FTC rule and does not impact state or local laws that may ban or limit non-competes.

For any questions regarding the FTC’s noncompete rule or other noncompete restrictions, please contact the authors or your DLA Piper relationship attorney. You can find related resources on the DLA Piper non-competes and Competition Enforcement Hub.