A federal judge in Texas has struck down the Federal Trade Commission’s (FTC) national ban on noncompete agreements that was set to take effect on September 4, invalidating requirements for employers to notify current and previous workers that any signed noncompete agreements would no longer be enforced. 

"The FTC’s lack of evidence as to why they chose to impose such a sweeping prohibition ... instead of targeting specific, harmful non-competes, renders the rule arbitrary and capricious," wrote District Judge Ada Brown of U.S. District Court for the Northern District of Texas.” The same federal judge previously issued a preliminary injunction prohibiting FTC from enforcing its ban against plaintiffs who sued in Texas, but the new ruling applies nationwide. The FTC is expected to appeal the decision. 

In a separate lawsuit challenging the FTC ban in Pennsylvania, a federal judge ruled in favor of the FTC in July and argued that the agency has clear legal authority to issue “procedural and substantive rules as is necessary to prevent unfair methods of competition.” The conflicting rulings will likely escalate the issue to the U.S. Supreme Court which will have ultimate authority over the FTC’s actions. 

Earlier this year, the FTC voted to ban any non-compete agreements signed by workers prohibiting them from joining their employers' rivals or launch competing businesses. The FTC ban would have forced employers to cancel any previous noncompete agreements, except for senior executives making more than $151,164 annually, and banned any new agreements from being signed by all workers beginning September 4. 

NLBMDA strongly opposes the noncompete ban that protects LBM businesses and has heavily supported the litigation in Texas challenging the FTC’s constitutional and statutory authority to write its own competition rules. While the FTC noncompete ban is vacated for now, NLBMDA is closely monitoring legal developments in anticipation of a U.S. Supreme Court case. Members with questions should contact NLBMDA at membersupport@dealer.org.