Federal Judge Finds FTC Non-Compete Rule Illegal; Prohibits Its Enforcement Nationwide

By: Scott Atwood, Esquire

In a much-anticipated and not unexpected ruling on Tuesday, August 20, a federal judge in Dallas, Texas, struck down the Federal Trade Commission’s Final Rule prohibiting non-compete agreements.

The Rule, which was set to go into effect on September 4, 2024, would have prohibited most non-compete agreements nationwide. In July, Federal District Judge Ada Brown (a Trump appointee) had issued a preliminary injunction in favor only of the named plaintiffs in the case. In that ruling, she had indicated that it was likely that the plaintiffs would ultimately prevail on the merits of the case. The Court initiated an expedited briefing schedule on the merits, indicating that it would make an ultimate ruling on the legality of the Rule prior to the September 4, effective date. 

In keeping with that promise, the Court issued a detailed 27-page decision on August 20, in which it found that the Rule was an illegal extension of the FTC’s authority that required the Court to “set aside” the Rule pursuant to the federal Administrative Procedure Act. The Court (by way of a footnote) made it clear that, in setting aside the Rule and not allowing it to take effect, its ruling had a nationwide effect. The FTC has indicated that it may appeal the decision. However, the Fifth Circuit where the Texas court is located, is one of the most conservative in the nation, making the likelihood of reversal far less likely. 

This decision comes on the heels of a federal court in Jacksonville, Florida, that granted a preliminary injunction last week based on the same reasoning as the Texas case. A few weeks prior, another federal judge in Pennsylvania found in favor of the FTC, concluding that the Rule was within its authority. 

Bottom Line

For now, because of the decision’s nationwide effect, Florida employers can still rely on the state’s broad non-compete statute. While several other states have placed restrictions on non-competes in the past few years, and there is some unofficial action from other federal agencies trying to undermine non-competes, at this time there is no change to the case law that state or federal courts in Florida would consider in determining whether to uphold non-compete agreements in Florida.

Employers needing assistance with non-compete agreements by reach me at scott.atwood@henlaw.com. 

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