Court Sets Aside FTC Final Rule on Non-Competes

On Aug. 20, a federal district court in Texas entered a final judgment setting aside the Federal Trade Commission’s Final Rule, which would have banned most existing and all new non-compete agreements for workers on Sept. 4. As a result of the decision in Ryan, LLC v. Federal Trade Commission, the Final Rule cannot be enforced or otherwise take effect — a ruling that applies on a nationwide basis.

The result is not too surprising, given this court’s previous decision to issue a preliminary injunction as to just the parties in the case, which we wrote about earlier this summer. Unlike the preliminary injunction ruling, however, the court’s Aug. 20 decision is not limited to the parties to the litigation, but broadly applies to employers across the country.

In issuing this decision, the court held that the FTC had exceeded its statutory authority under Section 6(g) of the FTC Act because it lacks substantive rulemaking authority with respect to unfair methods of competition. The court also found that the FTC’s promulgation of the Final Rule was arbitrary and capricious. Accordingly, the Ryan court directed that the Final Rule “shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.”

The court’s decision provides more predictability for employers, who had been grappling with whether to begin preparing for the anticipated effective date. As a result of this final order, employers are no longer required to comply with the notice requirement set forth in the Final Rule and can continue to enforce their non-compete provisions in accordance with applicable state laws.

The Texas court’s decision may not be the last word on this subject. In all likelihood, the FTC will appeal the decision to the Fifth Circuit.

Robinson Bradshaw is ready to advise clients on their employee agreements and will continue to monitor and provide updates on developments. If you have any questions, including how to best navigate the legal situation for your organization, please contact the authors or any member of Robinson Bradshaw’s Employment & Labor or Antitrust & Competition practice groups.