Texas Court Issues Limited Injunction to Non-Compete Rule

On April 23, 2024, the United States Federal Trade Commission (“FTC”) voted in favor of a Final Rule banning nearly all non-compete agreements, with limited exceptions related to the sale of a business and certain pre-existing agreements with senior executives.  Since that time, the Final Rule became subject to different challenges, including by Ryan LLC, the U.S. Chamber of Commerce (who intervened in the Ryan suit), and ATS Tree Services, LLC (E.D.PA).  On July 3, Judge Ada E. Brown of the Northern District of Texas ruled in Ryan LLC v. Federal Trade Commission that while the FTC has the power to prevent unfair methods of competition through administrative proceedings, “Congress did not explicitly give the [FTC] substantive rulemaking authority.” Given that the FTC “has exceeded its statutory authority in promulgating” the Final Rule, the Court found the Plaintiffs were likely to succeed on the merits.  The court further noted that the Final Rule is likely “arbitrary and capricious” as it is “unreasonably overbroad without a reasonable explanation”. The Court therefore granted the motion for the preliminary injunction and postponed the effective date of the Final Rule as applied to the plaintiffs, though not to the members of the U.S Chamber of Commerce.  Importantly, the court did not issue a nationwide injunction.  As such, the Final Rule currently remains in effect for the vast majority of the country.   

The Final Rule is still set to go into effect on September 4.  However, this effective date may still be delayed pending any appeal of the Ryan decision, the outcome of the Pennsylvania case in ATS Tree Services, LLC, and the final ruling in Ryan which is anticipated by August 30 – days before the effective date of the Final Rule. Given the current lack of a nationwide injunction, employers should consider what steps they need to take to protect their confidential and proprietary information, including potentially entering into non-compete agreements with senior executives prior the Final Rule effective date, as such agreements are not subject to the non-compete ban.  Employers with questions about the Final Rule or their non-compete agreements should contact Kristina Grimshaw at kgrimshaw@fglawllc.com or any other attorney at the Firm.

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