**Texas Court Ruling: FTC Non-Compete Ban Nationwide Outlawed**
A recent decision by a U.S. District Court in Texas has dealt a significant blow to the Federal Trade Commission’s (FTC) final rule banning non-compete provisions in U.S. employment contracts. The ruling, which granted a preliminary injunction for global tax service provider Ryan LLC, has now set aside the FTC’s rule nationwide.
**Background of the Case**
In April, the FTC voted to publish and approve a final version of the proposed rule that aimed to ban employers from using non-compete clauses for their employees. The rule allowed existing non-competes to remain in force for senior executives but prohibited new non-competes for all workers and made existing non-competes for other workers unenforceable after a certain effective date.
**Legal Challenge and Ruling**
Several lawsuits were filed seeking to overturn the rule, with the FTC arguing that it had the authority under Section 6(g) of the FTC Act to make substantive rules related to unfair methods of competition. However, the U.S. District Court in Texas disagreed, stating that the FTC lacked the authority to create substantive rules through this method.
The court found the rule to be arbitrary and capricious, as it was deemed unreasonably overbroad without a reasonable explanation. It also criticized the one-size-fits-all approach of the rule, noting that it failed to establish a rational connection between the facts found and the choices made.
**Implications of the Ruling**
The court’s decision to set aside the FTC’s rule means that it should not be enforced or take effect as planned. This ruling has significant implications for the future of non-compete agreements in the U.S. employment landscape.
**Reaction and Next Steps**
Following the court’s decision, there has been a split among regional circuit courts on the topic, with some judges granting relief against the rule while others denying it. The Pacific Legal Foundation, representing ATS Tree Services, expressed satisfaction with the ruling and indicated that litigation over the ban is expected to continue.
The FTC has hinted at the possibility of appealing the decision, indicating that the legal battle over non-compete provisions is far from over.
In conclusion, the Texas court ruling against the FTC’s non-compete ban has sparked a debate over the agency’s authority to regulate such provisions in U.S. employment contracts. The implications of this decision are likely to have a lasting impact on how non-compete agreements are enforced and regulated in the future.
