On August 20, 2024, the United States District Court for the Northern District of Texas issued a significant ruling, setting aside the Federal Trade Commission’s (FTC) Noncompete Rule, which was set to take effect on September 4, 2024. This rule sought to ban employee noncompete agreements nationwide, creating widespread concern among employers. This ruling provides relief and much-welcome certainty to employers who had been uncertain about the enforceability of their noncompete agreements.

The court's decision aligns with its earlier stance that the Noncompete Rule exceeds the FTC's statutory authority and is arbitrary and capricious. However, unlike its previous decision, which provided relief only to the specific plaintiffs involved in the case, this latest ruling extends the relief nationwide, effectively blocking the FTC's rule for all employers.

It is important to note that this ruling creates a split in authority, as at least one court in Pennsylvania has upheld the FTC's rule as a valid exercise of its authority. This inconsistency across jurisdictions increases the likelihood that the Texas court’s decision is likely to be appealed.

For now, employers do not need to revise their noncompete agreements or take steps to comply with the FTC's Noncompete Rule. The court’s ruling means that we maintain the status quo, where state law governs noncompetition agreements. Texas employers can continue to use noncompete agreements to protect key relationships and confidential information.

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