EMPLOYMENT CORNER

A Texas federal court set aside the Federal Trade Commission (the “FTC”) final rule that would ban nearly all post-employment noncompete agreements. The rule was set to go into effect in the coming weeks. The court found that the rule exceeded the FTC’s statutory authority and, therefore, vacated the rule’s implementation nationwide.

The court determined the FTC’s authority was limited to deciding whether a practice was considered an “unfair method of competition” on a case-by-case basis, rather than creating a blanket rule for all non-competes. The court concluded that the final rule was “arbitrary and capricious because it [was] unreasonably overbroad without a reasonable explanation. The final rule impose[d] a one-size-fits-all approach with no end date, which fail[ed] to establish a rational connection between the facts found and the choice made.” Specifically, the FTC’s process failed to consider potential positive benefits of non-compete agreements or address possible alternatives to a complete ban.

In parallel litigation in Florida, the FTC has asked for time to consider next steps in light of the Texas decision and whether it will seek to appeal the block.