Written By: Francine Alfandary and Austin Ochoa
On August 20, 2024, a federal district court in Texas struck down the Federal Trade Commission’s (FTC) regulation that sought to ban the use of non-compete clauses nationwide. The court ruled that the FTC exceeded its authority, concluding that the agency lacks the statutory power to implement a ban of this scope. As a result, the FTC’s non-compete ban, which was set to take effect on September 4, 2024, has been halted nationwide.
The judge’s decision underscores that regulatory agencies, including the FTC, are confined to the authority explicitly granted by Congress. In this case, the court determined that the FTC’s mandate to regulate “unfair methods of competition” under Section 5 of the FTC Act does not extend to issuing a blanket ban on non-competes. This ruling aligns with the recent Supreme Court decision in Loper Bright Enterprises v. Raimondo, which overturned Chevron v. Natural Resources Defense Council and similarly limited the powers of regulatory agencies, reinforcing that agencies must operate strictly within the boundaries set by Congress.
The Texas case is the most significant of three lawsuits challenging the FTC’s ban on non-competes. The other two cases, still pending in Pennsylvania and Florida, have seen mixed rulings—the judge in Pennsylvania sided with the FTC, while the judge in Florida ruled against it. These conflicting decisions cast significant doubt on the ban’s future.
As we discussed in our previous publication, it’s crucial for employers to stay informed about developments in these cases, as the outcomes could significantly impact the enforceability of the ban. We will continue to monitor the situation and provide updates as the FTC considers its next steps, including the possibility of an appeal.
If you have any questions about how these changes may impact you or your business, please don’t hesitate to contact us:
Francine Alfandary, Partner in the US Corporate Practice Group, at falfandary@pearlcohen.com
Austin Ochoa, Associate Attorney in the US Corporate Practice Group, at aochoa@pearlcohen.com
