Texas District Court Grants Narrow Injunction Against FTC Noncompete Ban

On July 3, 2024, a federal court in the Northern District of Texas issued a temporary injunction against the Federal Trade Commission’s (“FTC”) final rule banning most noncompete agreements (the “Rule”).[1] Baird Holm previously reported on this Rule here.

In the decision, the court found that the FTC is not empowered to engage in substantive rulemaking and that the Rule was likely “arbitrary and capricious” because it did not provide sufficient evidence nor account for enough alternatives to warrant “such a sweeping prohibition” against noncompete agreements.

The scope of the injunction is very limited. The preliminary injunction only restricts the FTC from enforcing the Rule against the plaintiffs in the instant case. The FTC may still enforce the Rule against other employers. Furthermore, the injunction is very limited in duration. It will only last until the Texas court renders a disposition on the merits of the case, which is expected to occur on August 30, 2024—a few days before the Rule becomes effective.

Because the future of the Rule is still uncertain, employers should take steps to comply by its effective date on September 4, 2024.

Sarah M. Huyck
Steven M. Winston, Summer Associate