On August 20, 2024, a federal court in Dallas ruled that the FTC exceeded its authority in promulgating a sweeping rule banning non-competition covenants nationwide thereby putting the rule on ice. The court determined that Congress did not grant the FTC authority to issue substantive rules concerning unfair methods of competition, as the non-compete rule purported to do, rather the FTC was only empowered to promulgate housekeeping rules. Beyond that, the court also concluded that the expansive non-compete rule lacked a rational basis and so was arbitrary and capricious. In this regard, the court found unconvincing the studies and other evidence cited by the FTC as justification for a sweeping ban on non-competition covenants broader in scope than any state restriction. Moreover, the court found that by ignoring potential exceptions and alternatives to an outright ban, the FTC failed to consider less draconian means of accomplishing its claimed objectives. Accordingly, the court entered summary judgment in favor of Ryan, LLC, an accounting firm that initiated the court challenge, as well as the intervening plaintiff, the U.S. Chamber of Commerce, and struck down the rule. The upshot of the court’s decision is that the non-compete rule will not take effect on September 4, 2024, as originally scheduled, and will remain in a holding pattern pending appellate review. The FTC has yet to state publicly whether an appeal will be filed.
