The Federal Trade Commission’s (FTC) regulations preventing employers from enforcing noncompete agreements against most workers may be on shaky legal ground after a July 3rd ruling by a federal District Court judge in Texas. The FTC rules are scheduled to become effective on September 4, 2024.
The preliminary injunction issued by U.S. District Judge Ada Brown was specific only to the plaintiff in this case, meaning that further action must be taken for there to be a broader stay or repeal of the rule. The order issued by Judge Brown suggests that she is likely to strike down the rule in its entirety when she rules later in August. She offered a litany of reasons why the rule is “arbitrary and capricious,” including that it was “unreasonably overbroad” compared to state limitations on non-competes; it failed to focus specifically on noncompetes that were harmful to employees; and the FTC exceeded its authority when adopting the rule under both the Administrative Procedures Act and the recent Supreme Court decision in Loper Bright Enterprises that repealed the Chevron doctrine.
To date, the FTC has made no comment on this or other court cases and has not placed a stay on the rule’s effective date pending resolution of the litigation.
