A Texas federal district court recently concluded that the Federal Trade Commission lacks the requisite statutory authority from Congress to enact a controversial rule that would prevent employers from entering into noncompetition clauses and, beyond that, bar them from enforcing most existing noncompetition clauses. The FTC’s Noncompete Clause rule (the rule) is scheduled to take effect on Sept. 4, 2024. However, U.S. District Judge Ada Brown from the Northern District of Texas granted certain challengers’ motion to stay the effective date of the rule and entered a preliminary injunction that prohibits the FTC from implementing and enforcing the rule until the court can resolve the ultimate merits of the challengers’ claims, which the Texas judge intends to do by Aug. 30, 2024.
The Groundwork for the Rule
In the summer of 2021, President Biden issued Executive Order 14036, titled “Promoting Competition in the American Economy.” The executive order called upon numerous federal agencies to take action to promote robust competition. Biden took aim at “federal government inaction” leading to consolidated industry, weakened competition, and increased power remaining with corporate employers. The executive order encouraged federal agency heads to use their authorities to further the administration’s policies, including to influence their regulations and competition. With respect to noncompete clauses, the executive order urged the chair of the FTC to “exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of noncompete clauses and other clauses or agreements that may unfairly limit worker mobility.”
