In August, a big decision was made in Texas regarding the anticipated federal ban on most non-compete agreements that was supposed to take effect on Sept. 4, 2024. The anticipated ban is also known as the U.S. Federal Trade Commission (FTC)’s “Non-Compete Rule” of 16 C.F.R. § 910.1-6.
U.S. District Judge Ada Brown granted summary judgment for a business entity and determined that the FTC lacked statutory authority to adopt broad rules that would ban employers from requiring employees to sign non-compete agreements.1 Judge Brown found that the FTC’s “sweeping prohibition” was arbitrary and capricious because it did not specifically target harmful noncompete agreements.2
Non-compete agreements are a widespread business practice in the U.S., which the FTC seeks to ban, taking the position that the agreements pose an unfair restraint on competition.3 Opponents of the ban are concerned about increased difficulty to protect proprietary information.4
While the FTC’s rulemaking typically pertains to consumer protection issues, its intended ban on non-compete agreements focused on unfair methods of competition.5 Judge Brown agreed that the FTC has power to prevent unfair methods of competition but determined that power was limited to creating procedural rules — not substantive rules.6 Thus, the Court held that the agency had exceeded its authority.