As readers of this blog know, we have been following the Federal Trade Commission’s (FTC) final rule broadly banning non-competition agreements (the “FTC Non-Compete Ban Rule“). On August 20, 2024, the United States District Court for the Northern District of Texas entered a final order and opinion striking down the FTC Non-Compete Rule in Ryan LLC v. FTC.
The FTC Non-Compete Rule was set to take effect on September 4, 2024, which would prospectively ban new non-competition agreements for most workers and retroactively invalidate existing non-competition agreements. The FTC Non-Compete Ban Rule would also have required employers to inform all employees with existing non-competes that the non-competition provisions were no longer valid, once the rule became effective.
The Texas District Court’s final decision follows its preliminary ruling, partially staying enforcement of the FTC Non-Compete Ban Rule. In its preliminary ruling, the District Court granted injunctive relief to the plaintiffs in the Ryan lawsuit, finding that the plaintiffs were likely to prevail on their claim that the FTC lacked authority to promulgate the rule and that it was arbitrary and capricious.
In its final ruling, the court found that the FTC does not have substantive rule-making authority and, thus, the FTC exceeded its statutory authority in promulgating the FTC Non-Compete Ban Rule. The court also found the rule was arbitrary and capricious because the FTC failed to consider less drastic alternatives to an outright ban on non-competition agreements.
Significantly, unlike the preliminary ruling, which only applied to the parties to the lawsuit, the court’s final ruling applies nationwide. Thus, employers that use non-competition agreements can continue to use and enforce them.
Even though the FTC Non-Compete Ban Rule has been stricken, employers should review their existing non-competition agreements to ensure that they are narrowly tailored to protect legitimate business interests as overbroad post-employment restrictions risk being held unenforceable by courts.
If you have questions about your business’s non-competition, or other agreements, please schedule a complimentary consultation with us through our online scheduling system.
Information contained in this blog is provided for informational purposes and does not constitute legal advice or opinion. You should consult with an attorney about the specifics of your matter or legal issue.