By Steven Eheart and Mark Wiletsky
Employers finally have the answer they’ve been waiting for: they don’t need to comply with the Federal Trade Commission’s (“FTC”) Rule banning noncompete agreements—for now.
The FTC’s Rule was set to go into effect on September 4, 2024. But, on August 20, 2024, a federal judge from the Northern District of Texas set aside the Rule and barred the FTC from enforcing it. The same judge previously put the Rule on hold as to only the parties who brought the lawsuit, but this new decision applies to all employers.
The Court rejected the Rule for two reasons: 1) the Rule exceeded the FTC’s statutory authority, and 2) the Rule is arbitrary and capricious.
The Court found that the plain language of the Federal Trade Commission Act (FTCA) does not expressly give the FTC authority to create substantive rules regarding unfair methods of competition. Additionally, the Court found that even if the FTCA empowers the FTC to create some rules, it only empowers rulemaking related to unfair or deceptive acts or practices—and noncompete agreements are not unfair or deceptive practices. In the end, the Court stated that the “role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do.” Read more