Federal Court Blocks FTC Non-Compete Ban

This is an update to our previous alert regarding the Federal Trade Commission’s final rule of April 23, 2024, banning most non-competition agreements between employers and workers (the “Final Rule”). The Final Rule was scheduled to come into effect on September 4, 2024. On August 20, 2024, the U.S. District Court for the Northern District of Texas (the “Court”) in Ryan, LLC v. FTC, held that the Final Rule is unlawful, barring its enforcement nationwide.[1]

The Court issued a preliminary injunction temporarily enjoining the Final Rule on July 3, 2024, but only as applied to the plaintiffs in Ryan, LLC v. FTC.  In its August 20, 2024 decision, the Court held that (1) the FTC does not have the statutory authority to create substantive rules regarding unfair methods of competition, and (2) the Final Rule is arbitrary and capricious in violation of the federal Administrative Procedure Act because the FTC failed to justify its “one-size-fits all” sweeping ban of almost all non-competes with sufficient evidence, did not consider countervailing evidence, and did not address potentially less disruptive alternatives to a retroactive ban of all non-competes.  

The Court’s decision prevents the FTC from enforcing the Final Rule against any employer nationwide.   The FTC has 60 days from August 20th to appeal the Court’s decision.  Any such appeal will be heard by the U.S. Court of Appeals for the Fifth Circuit and possibly the U.S. Supreme Court.  Both of these courts have recently issued decisions curtailing the power of federal agencies. 

For the time being, employers will not be required to issue notices to workers that existing non-compete agreements are unenforceable by September 4, 2024, and can enter into new non-compete agreements with employees, although such agreements are still subject to any requirements and restrictions by applicable state law.

State legislatures continue to pass laws that restrict the permissible scope of non-compete agreements.  California has a long-standing ban on non-competes, as do Minnesota, North Dakota, and Oklahoma.  Other states restrict the use of non-competes in certain professions or below certain income levels.  In a number of states, bills have been introduced that if enacted, would further limit the use of non-competes.  The Ryan holding also does not prevent the FTC from scrutinizing non-competes through case-by-case enforcement actions.  Finally, there is some bipartisan support in Congress for a bill introduced in 2023, the Workforce Mobility Act of 2023, that if enacted, would institute a federal ban on most non-compete agreements.

We will continue to monitor the Ryan case and legislative and agency actions regarding non-compete agreements and post further alerts if there are further developments.

If you have any questions regarding non-compete agreements and other measures businesses are allowed to take to protect their interests to prepare for the case when workers leave employment, please reach out to your Wuersch & Gering attorney or to Orla McCabe at orla.mccabe@wg-law.com or 212-509-1910. 

This summary has been prepared for general informational purposes only and does not constitute legal advice.  It is intended only as a summary and does not contain all details applicable to the decision in Ryan, LLC v. FTC.  This summary may be construed as attorney advertising.

[1] Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, ECF No. 211 (N.D. Tex. Aug. 20, 2024)