Texas Court Blocks Enforcement of FTC’s Non-Compete Ban
On April 23, 2024, the U.S. Federal Trade Commission (“FTC”) issued a Final Rule banning nearly all post-employment non-compete agreements, with limited exceptions related to the sale of a business and certain pre-existing agreements with senior executives, and requiring employers to send notices to current and former employees informing them that their non-competes were unenforceable. The Final Rule, which was scheduled to go into effect on September 4, 2024, has been subject to a number of legal challenges. This week, in Ryan LLC v. Federal Trade Commission, the federal district court for the Northern District of Texas set aside the Final Rule, ordering that it not be enforced or otherwise take effect for any employers nationwide.
The Texas court, which had previously postponed the effective date of the Final Rule as applied to the plaintiffs in that case only, held that the FTC exceeded its statutory authority in promulgating the Final Rule. The court also held that the Final Rule itself was arbitrary and capricious because it was “unreasonably overbroad without a reasonable explanation” and was “based on inconsistent and flawed empirical evidence.” The court specifically noted that no state had enacted a non-compete rule as broad as the Final Rule, and that the FTC provided no evidence as to why a “sweeping prohibition” was needed instead of a rule targeting “specific, harmful non-competes.” As a result, the court held the Final Rule was unlawful and not to be enforced against any employers, nationwide.
Given the court’s decision, employers are not currently required to comply with the Final Rule. While there have been other decisions on the Final Rule with limited effect or which have found the Final Rule to be lawful, the Texas decision issues a nationwide ban and is not limited to the parties that brought the case forward. So while there may be an appeal of this decision, at this time, employers are not required to make changes to their non-competes as a result of the Final Rule. We will continue to watch these decisions and provide an update if there are further developments.
Employers with questions about the FTC’s Final Rule, the related litigation or their non-compete agreements generally should contact Kate Townley at ktownley@fglawllc.com or any other attorney at the Firm.
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