A federal district court recently ruled that the Federal Trade Commission’s ban on employment-based non-competes is unlawful and therefore shall not be enforceable or otherwise become effective. The FTC reportedly will consider appealing that decision.[1] The FTC has not yet filed a notice of appeal, which is due on or before Monday, October 21, 2024.[2]

Earlier this year, the FTC voted to enact Part 910 of Title 16 of the Code of Federal Regulations—a federal regulation banning most employment-based non-competes.[3] That rule was set to become effective on September 4, 2024.[4] But, based on summary judgment entered in the Northern District of Texas, Part 910’s non-compete ban and notice requirements will not take effect on September 4, 2024.[5]

The Northern District of Texas Opinion

The opinion supporting summary judgment declares that the FTC did not have statutory authority to enact Part 910 and that the FTC’s non-compete ban is “arbitrary and capricious.” According to the court’s reasoning, neither Section 6(g) nor Section 18 of the FTC Act provide a basis for the FTC to substantively regulate “unfair methods of competition.”[6] The decision’s statutory authority analysis ends there, leaving other arguments like the “major questions” doctrine unaddressed.[7] The court further determined that the FTC’s non-compete ban was “arbitrary and capricious,” and therefore illegal, because the ban is “unreasonably overbroad.”[8] According to the decision, the FTC enacted the ban based on inapposite evidence and without consideration of appropriate alternatives.[9] Having determined that Part 910 is illegal, the court held that Fifth Circuit precedent interpreting the Administrative Procedures Act requires a nationwide set aside of the illegal agency action.[10] Thus, because the FTC enacted the ban without proper evidence, consideration, or authority, the court ruled that Part 910 shall not become effective.[11]

Effect on Other Litigation Involving the FTC’s Non-compete Ban

Part 910’s ban affects two important litigation contexts: (1) enforcement proceedings brought by the FTC and (2) state and federal litigation regarding non-compete provisions between private parties. Other state and federal jurisdictions are not bound by the Northern District of Texas decision. And the FTC contends that it still has the power to enforce Part 910 on a case-by-case basis in the enforcement context.[12] Part 910’s ban, however, contains an exception where a party has a “good faith” belief that Part 910 does not apply. A target of an FTC enforcement action presumably would attempt to argue that a federal court striking down Part 910 supports a good faith belief that Part 910 did not apply to the target. Similarly, employers likely will cite the Northern District of Texas decision as persuasive authority that Part 910 does not preclude the enforcement of employment-based non-competes. We will have to see how courts react to these arguments and decisions, especially as courts in other jurisdictions rule on Part 910’s legality and validity.

Other Federal District Courts’ Related Decisions

Challenges to Part 910 in other federal courts have yielded contrary results on motions for preliminary injunction. Preliminarily enjoining the FTC’s non-compete ban only as to the parties in the case, a Middle District of Florida judge explained, on the record, that the FTC’s non-compete ban likely violates the “major questions” doctrine.[13] An Eastern District of Pennsylvania judge was unpersuaded that any argument advanced by the plaintiff in that case is likely to succeed.[14] Regarding the validity of the FTC’s non-compete ban, the Pennsylvania court’s opinion explained that the FTC Act empowers the FTC to substantively regulate unfair methods of competition and that the FTC non-compete ban does not violate the “major questions” doctrine.[15] The court did not reach an analysis of whether the FTC ban is “arbitrary and capricious.”[16]

What’s Next?

In sum, a federal court has issued an order purporting to invalidate the FTC’s non-compete ban throughout the United States. Two other courts that have addressed these issues have only split as to whether to order preliminary injunctions applying to the parties in the case. Each of the three courts based their decisions on differing rationales. These issues presumably will work their way through the federal appellate system, perhaps to the Supreme Court. Lawyers and their clients should continue monitoring courts’ decisions, especially in relevant jurisdictions, to see where, when, and how the FTC’s non-compete ban will take effect.

Disclaimer: The foregoing is not, and is not intended to, constitute legal advice; this article is for general informational purposes only. Readers should contact an attorney to obtain advice with respect to any particular legal matter or scenario. No reader should act or refrain from acting on the basis of information herein without first seeking legal advice from counsel in the relevant jurisdiction. Use of, or access to, this article does not create an attorney-client relationship between the reader and its author or their employers.

At the time of this publication, Nicholas E. Williams is an attorney, licensed in North Carolina and Florida, living in Charlotte.

[1] Reuters and Jeanne Sahadi, US Judge Strikes Down Biden Administration Ban on Worker ‘Non-compete’ Agreements, CNN (August 21, 2024, 12:39 PM), (quoting FTC spokesperson Victoria Graham).

[2] See Fed. R. App. P. 4(a)(1)(B)(ii)); Fed. R. App. P. 26(a)(1).

[3] Federal Trade Commission, FTC Announces Rule Banning Non-competes (April 23, 2024).

[4] Non-Compete Clause Rule, 89 Fed. Reg. 38,342, 38,505 (May 7, 2024) (to be codified at 16 C.F.R. § 910.6).

[5] See generally Ryan v. Fed. Trade Comm’n, No. 3:24-cv-00986-E (N.D. Tex. Aug. 20, 2024).

[6] See id. at 14–22.

[7] See id. at 22 (“Having determined the FTC exceeded its statutory authority, the Court pretermits further discussion of statutory bases.”).

[8] See id. at 22–26.

[9] See id. at 24–25.

[10] See id. at 26–27.

[11] See id. at 27.

[12] Sahadi, supra note 1.

[13] See Props. of the Villages v. Fed. Trade Comm’n, No. 5:24-cv-316-TJC-PRL, at 15–21 (M.D. Fla. Aug. 15, 2024.)

[14] See ATS Tree Servs. v. Fed. Trade Comm’n, No. 2:24-cv-01743-KBH, at 22–38 (E.D. Pa. July 23, 2024).

[15] See id.

[16] See id. at 3 n.4.

August 29, 2024/by Business