Federal Judge in Texas Sets Aside FTC’s Noncompete Rule
On Aug. 20, Judge Ada E. Brown of the U.S. District Court for the Northern District of Texas ruled in favor of setting aside the Federal Trade Commission’s (FTC’s) recent Non-Compete Clause Rule. Brown found the FTC’s noncompete rule to be unlawful and said it should not be enforced or otherwise take effect on its scheduled date of Sept. 4 or thereafter. This decision means businesses do not need to comply with the FTC’s rule, and it supersedes other federal court decisions in Florida and Pennsylvania, which had a more limited impact on the rule.
The decision in Texas, rendered in Ryan LLC v. Federal Trade Commission, has significant implications for the viability of the noncompete rule. The ruling is significant because the court concluded that the FTC had “exceeded its statutory authority” in enacting the noncompete rule, therefore finding the rule to be unlawful and barring the FTC from enforcing it nationwide. Many of the issues that Brown identified were also raised by SHRM in its April 2023 public comment and multiple amicus briefs submitted to the court.
Specifically, Brown said the FTC chose “to impose such a sweeping prohibition—that prohibits entering or enforcing virtually all noncompetes—instead of targeting specific, harmful noncompetes,” which the court believes undermined the legality of the noncompete rule. Brown added that “the record shows the FTC failed to sufficiently address alternatives to issuing the Rule.”
In a press release, Emily M. Dickens, SHRM’s chief of staff and head of government affairs, said, “SHRM has been clear on this issue from the beginning, advocating for balanced business practices that protect both workers and employers. The court’s decision affirms our position—like SHRM, the Judge recognized that the FTC’s sweeping ban failed to explore less restrictive alternatives and ignored the positive impact noncompete agreements can have when applied appropriately.”
Dickens continued, “SHRM views this decision as a victory for smart advocacy, sound policy, and ultimately, the U.S. workforce. We remain committed to supporting any further efforts to uphold the Judge’s ruling and ensure that noncompete agreements, when used responsibly, remain a viable tool in our economy.”