FTC Noncompete Ban Struck Down

On August 20, a federal judge in Texas permanently blocked the Federal Trade Commission's ("FTC") rule that would have banned nearly all noncompete agreements nationwide. The court held that FTC lacked statutory authority to promulgate the rule and that, in any event, it was arbitrary and capricious in violation of the Administrative Procedure Act ("APA"). This means the rule will not take effect as scheduled on September 4 and no employer can be required to comply with it at this juncture.

The Court's Ruling

The court granted the challengers' motions for summary judgment, denied FTC's cross-motion, and "set aside" the rule on a nationwide basis. The court held that the "text, structure, and history" of FTC's organic statute showed a lack of Congressional authorization to create "substantive rules regarding unfair methods of competition"—and thus FTC lacked authority to create the rule at all. The court further held that the substance of the rule was arbitrary