Texas Judge Stops Nationwide Ban on Non-Compete Agreements

On August 20, 2024, a significant ruling came out of Texas, where U.S. District Judge Ada E. Brown moved to block a new rule by the Federal Trade Commission (FTC) that would have banned non-compete clauses in employment contracts across the United States. 

This new rule was supposed to start on September 4, 2024, but now it won’t go into effect as planned.

What Was This Rule All About?

Earlier in the year, the FTC introduced a rule that aimed to eliminate non-compete agreements entirely. Non-compete agreements prevent employees from joining competing firms or starting similar businesses within a certain time after leaving a company. 

The FTC believed that by banning these agreements, about 30 million workers would benefit by having more freedom to switch jobs or start new ventures without restraint.

However, just after the FTC announced this rule, a company named Ryan LLC, alongside the U.S. Chamber of Commerce and some others, sued the FTC. They argued that the FTC didn't have the authority to make such a sweeping change.

Why Did The Judge Block the Rule?

Judge Brown found that the FTC overstepped its powers with this rule. According to her, the FTC’s attempt to stop companies from using non-compete clauses was too broad and didn’t consider specific cases where such clauses might be justified. 

She said that the FTC didn't provide enough reason for such a wide-ranging prohibition and struck down the rule as being overreaching and not reasonable.

What Happens Next?

Although Judge Brown’s decision is final for now, the FTC might appeal her decision. This means the case could go to the United States Court of Appeals for the Fifth Circuit. 

The outcome might also depend on political changes with the upcoming presidential inauguration in 2025. Depending on who's in power, the FTC might or might not continue to pursue this.

What Should Employers Do?

For now, non-compete clauses won’t be banned starting September 4, 2024, as initially thought. However, this topic still requires attention. The view on non-compete agreements is changing, and various states and other federal agencies are beginning to enforce stricter rules against them. 

Employers should watch this development closely, considering alternatives for protecting their businesses without heavily relying on non-compete clauses.

This decision marks a pause rather than an end to the debate and shifts around non-compete agreements in the U.S.

-

Need more legal guides? Check out the articles here.