Clifford Chance

Federal District Court Rules That Federal Trade Commission Lacks Substantive Rulemaking Authority and Stays Non-Compete Ban

July 4, 2024

Stay does not apply nationwide; applies only to plaintiffs and plaintiff-intervenors

Judge Ada Brown of the Northern District of Texas issued a preliminary injunction on July 3, 2024, staying the Federal Trade Commission rule that would prohibit, with limited exceptions, employers from entering into non-compete clauses with employees or enforcing existing non-compete clauses against employees. Notably, the stay does not apply nationwide, but rather only to the plaintiff and plaintiff-intervenors. In issuing the preliminary injunction, Judge Brown, a Trump appointee, found that the FTC exceeded its authority in issuing the Non-Compete Rule because Section 6(g) of the Federal Trade Commission Act does not grant rulemaking authority to the FTC with respect to unfair methods of competition. While Judge Brown’s order is preliminary, she intends to rule on the ultimate merits of the case by August 30, 2024.

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