Federal court grants narrow preliminary injunction on FTC noncompete ban; ruling indicates FTC likely lacks statutory authority and rule probably arbitrary and capricious

A federal court in Texas last week found that the Federal Trade Commission likely lacked statutory authority to issue its Non-Compete Clause Final Rule. The court also found the rule was likely arbitrary and capricious because the FTC did not provide sufficient “evidence as to why they chose to impose such a sweeping prohibition — that prohibits entering or enforcing virtually all non-competes — instead of targeting specific, harmful non-competes,” and because the agency failed to consider adequate alternatives to its sweeping final rule. In so doing, the court issued a preliminary injunction against enforcement of the rule only as to the parties challenging the rule (e.g., Ryan LLC, a global tax firm). The court stated that it intends to rule on the ultimate merits of this action on or before Aug. 30. 
 
The AHA last year submitted comments making these and other arguments against the rule. In addition, the AHA and other national organizations in May sent a letter to the FTC requesting a stay on the Sept. 4 effective date to allow for judicial review.