On July 3, 2024, a federal district court in Dallas ruled that the Federal Trade Commission (“FTC”) likely exceeded its authority when it enacted a nationwide noncompete ban.
The court noted, “The text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition.” The court also found “there is a substantial likelihood the [FTC’s] Rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation. It imposes a one-size-fits-all approach with no end date, which fails to establish a rational connection between the facts found and the choice made.” The court also noted that “no state has ever enacted a non-compete rule as broad as the FTC’s Non-Compete Rule.” The court also criticized the FTC for “not sufficiently consider[ing] alternatives” to a total ban.
This is only a preliminary ruling, and it only applies to the parties before the court. However, the court promised to make a final ruling on the merits by August 30, 2024.
From my perspective, this is not a surprising ruling. From the time that the FTC announced that it was considering banning noncompete agreements, I have been skeptical that the FTC had the authority to take such action.
Ultimately, whether the FTC had the authority to act as it did will be decided by appellate courts and possibly by the United States Supreme Court itself. For now, though, a federal district court in Dallas has held that the FTC, in banning noncompete agreements nationwide, likely exceeded its authority.
Read the full text of the ruling here.