FTC’s Noncompete Ban Blocked by Texas Court

A federal court on August 20 blocked the Federal Trade Commission (FTC) ban on noncompete agreements from taking effect in September in Ryan LLC v. Federal Trade Commission [refer to Washington Highlights, April 26]. Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled that the FTC lacked authorityto issue the noncompete rule, which would have prohibited companies from barring their employees from working for a competitor after their employment ends.

The court held that the rule "is arbitrary and capricious" because it is "unreasonably overbroad without a reasonable explanation" and that the FTC exceeded its authority. The court's holding blocks enforcement of the rule nationwide for all employers. The noncompete rule was part of the Biden administration's effort to prevent unfair methods of competition. Business groups have argued that the rule would limit them from protecting confidential information and trade secrets. The FTC is currently deciding whether to appeal the decision.