Federal court blocks FTC final rule on noncompete agreements

A federal district court in Texas on August 20 blocked implementation of the Federal Trade Commission's (FTC) recent final rule banning most noncompete agreements.

Judge Ada Brown of the U.S. District Court for the Northern District of Texas said the FTC lacks legal authority to issue the rule, which it declared "arbitrary and capricious." The decision means that the FTC cannot enforce the ban on noncompete agreements at this time, which was set to go in effect September 4.

The FTC issued its final rule in April 2024, banning noncompete agreements across all industries and professions, with limited exceptions. But several business groups filed suit challenging the FTC's authority to issue the rule, including the U.S. Chamber of Commerce. That challenge resulted in the recent court decision in Texas.

"This decision is a significant win in the Chamber's fight against government micromanagement of business decisions. A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage," said Chamber President and CEO Suzanne Clark in a statement.

The FTC says it is considering an appeal and that "the decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions."

Noncompete agreements can take many forms. Typically, they are part of a written employment agreement that restricts an employee who leaves a job from working in that field for a specific time period in a certain geographic area. Noncompete agreements often have been incorporated into employment contracts with associate veterinarians to prevent them from leaving a practice for a nearby location and taking clients with them.