FTC Noncompete Ban Struck Down Nationwide

A federal court in Texas struck down the Federal Trade Commission's (FTC) rule banning noncompetes on Aug. 20, holding that the FTC exceeded its statutory authority and that the rule was arbitrary and capricious. Following this decision, employers relying on state-compliant noncompetes to protect key business interests can breathe a collective sigh of relief—the decision applies to all employers nationwide and eliminates the need to comply with the rule, pending any appeals.

The FTC's noncompete rule, first adopted on April 23, 2024, barred employers from entering into noncompetes with workers and required them to rescind existing noncompetes before Sept. 4, 2024. The FTC argued that noncompete clauses are "unfair methods of competition" under Section 5 of the FTC Act and that it had the power to issue the rule pursuant to Section 6(g) of the same act. In further support of its rule, the FTC pointed to studies which concluded that noncompetes stifle innovation and