Employers around the country can breathe a sigh of relief, at least for now, and at least for this latest threatened upheaval of customary employment practices—the FTC’s final rule banning non-compete agreements. In the federal case of Ryan LLC v. Federal Trade Commission, Judge Ada Brown of the U.S. District Court of the Northern District of Texas had previously granted a preliminary injunction staying the ban, but only as applied to the parties that brought the lawsuit. But on August 20, 2024, Judge Brown issued a final judgment in that case finding that the FTC’s non-compete ban is unlawful and prohibiting enforcement of the final rule, not just to the parties in the case, but nationwide.
In striking down the FTC’s non-compete ban, the U.S. District Court ruled that not only did the FTC exceed its statutory rulemaking authority in promulgating the non-compete ban, but that the rule itself was arbitrary and capricious, was based upon flawed and inconsistent data, failed to consider the positive benefits of non-competes, and was without justification for its overly broad scope and gravity.
Of course, it is almost certain that the FTC will appeal this ruling to the Fifth Circuit; but it is also expected that it will be an uphill battle to get the District Court’s ruling reversed—and all the while the FTC’s ban will remain unenforceable.
So, the FTC’s current final rule banning non-competes will NOT take effect on September 4, 2024, as previously scheduled. And, while it is not likely that the FTC’s current final rule will ever take effect, that will not become official until all appeals are exhausted. Additionally, Judge Brown did leave the door open to the possibility of a more narrowly tailored rule that targets specific harmful non-competes.
What all of this means is that while businesses do not have to start sending out notices negating existing non-competes and can continue to use this tool in appropriate circumstances, non-competes are not quite out of the woods yet. Not only must we await the results of any appeals brought by the FTC concerning the current rule, but the legality of non-competes is also being challenged by the National Labor Relations Board. So, employees subject to valid non-competes should continue to adhere to the terms of those agreements and businesses thinking about enforcing existing non-competes or promulgating new agreements should be cognizant of the shifting legal landscape and consult an employment law attorney before taking action.
Tagged In:Employment & LaborEmployment Agreements and ContractsNon-Compete and Other Restrictive Covenant Disputes