On August 20, 2024, the United States District Court, N.D. Texas, Dallas Division issued an order setting aside the Federal Trade Commission’s “Non-Compete Rule,” or 16 C.F.R. § 910.1–.6 (the “Rule”).
The Rule would have made most non-compete agreements unenforceable – affecting employees, independent contractors, externs, interns, volunteers, apprentices, and sole proprietors that provide a service to a person.
The Texas court found that the FTC exceeded its statutory authority in implementing the Rule and that the Rule is arbitrary and capricious. The court found that the record shows no state has enacted a non-compete rule as broad as the Rule, and that the Rule imposes a one-size-fits-all approach with no end date, which fails to establish a rational connection between the facts found and the choice made. The court also found that the FTC failed to sufficiently address alternatives to issuing the Rule.
The Texas court decision to set aside the Rule applies nationwide pursuant to the Administrative Procedure Act, rather than only affecting the named plaintiffs. As such, the Rule cannot be enforced at this time. This decision remains subject to appeal to the U.S. Court of Appeals for the Fifth Circuit.