A Dallas district court judge has issued an order and opinion that “sets aside” the Federal Trade Commission’s (FTC) new rule against non-compete agreements.
“Consequently, the Rule,” wrote Judge Ada Brown, “shall not be enforced or otherwise take effect on its effective date of September 4, 2024 or thereafter.”
She also denied the FTC’s motion for summary judgment.
Ryan LLC, a Dallas-based tax servicer; the Texas Business Association (TBA); the U.S. Chamber of Commerce; and the Longview Chamber of Commerce filed the initial lawsuits wherein Brown previously temporarily blocked the new rule.
Brown stated clearly her reasoning behind the decision, writing, “The role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do.”
Essentially, the court said that the FTC overstepped its bounds by trying to establish the non-compete rule, as the authority provided by Section 6(g) of the FTC Act does not extend to the creation of such substantive regulations concerning unfair competition.
Brown added that the FTC rule is “arbitrary and capricious.”
The new rule was announced in April, when FTC Chair Lina M. Khan wrote, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.”
“The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Businesses use non-compete agreements to protect their substantial investments in employees who are crucial in safeguarding valuable proprietary information, ensuring that sensitive data remains secure while enabling companies to offer enhanced training and compensation opportunities in competitive industries.
In the wake of this recent order, the U.S. Chamber of Commerce called it “a major legal victory.”
“This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions,” stated U.S. Chamber of Commerce President and CEO Suzanne P. Clark.
“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. We remain committed to holding the FTC — and all agencies — accountable to the rule of law, ensuring American workers and businesses can thrive.”
