The FTC’s rule prohibiting employee noncompete agreements was shot down.

Judge Ada Brown of the Northern District of Texas issued a summary judgment on Aug. 12 against the rule, which was to come into effect on Sept. 4. It effectively ends the rule for now, but Brown’s ruling can still be appealed, and the FTC said it intends to keep fighting.

Noncompete agreements can restrict employees from working for a company’s competitors for a period of time within a specified geographic area after the worker leaves a company. The FTC’s ban had drawn concerns from within some corners of the staffing industry.

The decision in this case has nationwide effect, wrote staffing industry attorney George Reardon in an analysis of the decision.

The “court found that the FTC lacked authority to impose substantive rules on unfair methods of competition (what FTC considers noncompetes to be),” Reardon wrote. “The court also held that, even if the FTC had sufficient authority to impose such rules, the rule that it actually created to ban non-competes is unconstitutional, arbitrary and capricious and is therefore unlawful.”

Still, the decision may be appealed to the Fifth Circuit Court of Appeals, though Reardon noted that court is regarded as the most conservative of the federal appellate courts. Ultimately, the question of the noncompete ban could go before the US Supreme Court.

In addition, the FTC can still prosecute individual noncompete cases using its theory that the noncompetes are unfair methods of competition, Reardon wrote. However, it would have to provee that assertion case by case without the presumption of noncompete illegality the ban would have provided.

“The abortive threat of this FTC Rule should still be a wakeup call to staffing firms to better protect their confidential information and to review their employment agreements to ensure that they are enforceable under state laws, which have recently been tightened in many states,” he wrote.

This case was originally filed in April 2024.

“We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation and depress wages,” FTC spokesperson Victoria Graham said in a note to SIA. “We are seriously considering a potential appeal, and today’s decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions. “

Separately, a survey by job board Monster found that 94% of workers it surveyed supported the banning of noncompetes.

Judge Brown’s ruling also runs counter to another federal court in the Eastern District of Pennsylvania that found the FTC has authority to ban noncompete clauses.

Still, Judge Brown’s ruling was lauded as a victory by the US Chamber of Commerce.

“This decision is a significant win in the chamber’s fight against government micromanagement of business decisions,” US Chamber of Commerce President and CEO Suzanne Clark said in a press release. “A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses and our economy at a competitive disadvantage.”

Ryan LLC v. Federal Trade Commission; US District Court Northern District of Texas; 3:24-cv-00986-E