Federal Judge Issues Injunction Against FTC Non-Compete Rule, Says There is a “Substantial Likelihood” the Rule is Unlawful

By: Scott Atwood, Esq.

In April 2024, the Federal Trade Commission, by a narrow 3-2 vote, approved a highly controversial Rule that effectively eliminates non-compete agreements nationwide for the vast majority of employees. The Rule was set to go into effect on September 4, 2024. Business interests had opposed the Rule since it was proposed and immediately filed lawsuits to stop the Rule from going into effect. The primary lawsuit is one based in the Northern District of Texas. In that case, several plaintiffs, including the U.S. Chamber of Commerce, sought to have the Rule invalidated as an abuse of the FTC’s rulemaking authority.

July 3 Injunction

On July 3, the federal judge overseeing the Texas case issued a preliminary injunction in favor of the U.S. Chamber of Commerce and various other business interests and entities, thus hitting the pause button on the Rule. In its issuance of the preliminary injunction, while the injunction was limited just to the plaintiffs in the case (as opposed to a nationwide injunction), the Court indicated that it would issue a final decision on whether the Rule was valid before the September 4, 2024 implementation date.

That said, the judge made it very clear in the lengthy written opinion granting the preliminary injunction that she believed that the Rule was an unprecedented overreach of the FTC’s rulemaking authority and that she would not have granted the preliminary injunction had she not concluded that there was a “substantial likelihood” that the Rule would be struck down. If the Court did ultimately strike down the Rule, it would almost certainly state that the ruling had a nationwide effect, not just for Texas employers. 

Bottom Line

Consequently, Florida employers should be wary about making any changes to their non-compete agreements based on the FTC Rule. (Employers in other states should look at their own state’s non-compete laws and make sure they comply with those requirements – many states, including Rhode Island and Washington, have recently made significant pro-employee changes to their non-compete laws.) Henderson Franklin will continue to follow this story and keep you updated on any new developments. 

You may contact me at 239-344-1287 or scott.atwood@henlaw.com should you need assistance navigating this or any other employment-related situation.