Last week, we received the first indication of a Texas federal court’s position on a lawsuit filed by the U.S. Chamber of Commerce challenging the validity of the Federal Trade Commission’s new regulations banning most employment noncompetition agreements in the U.S. The court granted the plaintiff’s request for a preliminary injunction prohibiting enforcement of the rules against the named plaintiffs in the lawsuit. The judge indicated her intent to consider whether to grant a broader injunction prohibiting the FTC from enforcing the rule no later than August 30.

In her opinion, the judge expressed skepticism about the FTC’s general regulatory authority, in addition to the validity of the noncompete ban itself. By granting the limited injunction, the court indicated that it is likely to rule in favor of the plaintiffs, declaring the rule invalid and issuing a broader injunction. This Texas case is not the only one in which the FTC’s rule is being challenged. There is a similar case pending in the Eastern District of Pennsylvania, and the hearing in that case occurred on July 10. The Pennsylvania court has indicated it will issue its decision by July 23.

While there are no guarantees with respect to the district court’s actions or later appellate court review, employers may decide to wait for the Texas court’s decision before making changes to their existing or future restrictive covenant agreements with employees. If employers advise employees now that their noncompetes will not be enforced based on the FTC rules, it could be difficult to reimpose those restrictions in the event that the regulations are permanently blocked.

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