On Tuesday, August 20, a federal judge, Ada Brown, from the U.S. District Court for the Northern District of Texas, declared unlawful the Federal Trade Commission’s (FTC) rule banning employers from requiring employees to sign noncompete agreements.  The decision blocks the rule from taking effect on September 4, as originally scheduled.  Judge Brown found that the FTC had no authority to adopt the rule, and that the rule’s sweeping prohibition was “arbitrary and capricious.”  She determined that the rule was overbroad in that it imposed the same restrictions on every employer and every type of noncompete agreement.  Judge Brown commented that even if the FTC had the authority to make a rule, it would be more appropriate to target specific, harmful noncompete agreements.

Last week, a Florida federal judge similarly ruled that the FTC’s rule was “likely invalid,” a decision that blocked the rule from being applied to the real estate developer that challenged it in the Florida court.  Tuesday’s Texas court ruling is more expansive in reach, resulting in a permanent, nationwide ban of the rule.  The FTC may appeal Judge Brown’s ruling to the Fifth Circuit Court of Appeals, and any Fifth Circuit opinion could subsequently be appealed to the Supreme Court of the United States.  An appellate court could potentially stay the Texas ruling or overturn it, which would put the rule into effect.  For now, the Texas ruling leaves employers subject only to the applicable state noncompetition laws that are currently in place.  Englander Fischer will continue monitoring any developments on this ruling.  If you have any questions,  please contact the attorneys at Englander Fischer.