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Breaking: Judge's Partial Block of FTC Non-Compete Rule Does Not Apply Nationwide

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Authors: Timothy J. Bartl

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Today, a federal judge in Texas partially blocked the FTC’s rule that bans almost all non-compete agreements, but only for the plaintiffs in the case. For now, the rule is still scheduled to go into effect September 4th for all other parties. See our press release here

What’s next: A full decision by the judge is expected by August 30th, which could fully block the rule nationwide. Meanwhile, other legal challenges are pending in other states, which could result in a nationwide block before the full decision is issued.  

The bottom line: The judge was clear in her belief that the FTC’s rule is unlawful, meaning the full decision by August 30th is likely to block the rule nationwide ahead of its September 4th effective date. This means the limited decision today may only be a speed bump on the road to a full block of the rule.  

The judge’s decision: Judge Ada Brown of the Northern District of Texas found that "the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority" to issue the non-compete ban and issued an injunction temporarily blocking the rule and postponing its effective date, but only for the plaintiffs: a Texas law firm and the U.S. Chamber of Commerce, Business Roundtable, and Texas Association of Business (but not, notably, their members).  

What it means: The rule remains scheduled to go into effect September 4th for everyone except the parties listed above. However, the rule is likely to be blocked for all parties ahead of its effective date – just not by the present decision. Any decision fully blocking the rule will almost certainly be appealed. Whether the block will be upheld may depend on which federal Court of Appeals hears the case – a decision likely months away.  

Employer considerations: Nearly 90% of HR Policy members indicated they would continue issuing new non-compete agreements up until the rule’s effective date. Employers should use this time to conduct a thorough audit of their use of restrictive covenants to identify compliance risks and the necessity for non-compete usage in general. Even if the FTC’s rule is fully struck down, more restrictions are on the way from both state and federal lawmakers. Now is the time to reevaluate options for protecting investments in talent and proprietary information.  

Stay ahead of the evolving policy landscape affecting human capital strategies by joining us at the Washington Policy Conference on September 10 and 11. Former FTC Commissioner Christine Wilson and Lori D. Goodman from Freshfields will provide insights into the latest state laws and regulations, including the changing legal environment surrounding non-compete agreements. Register and view the full agenda here 

See also: HRPA Report on Preserving the Responsible Use of Non-Compete Agreements

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