FTC’s New Rule Banning Non-Compete Agreements Blocked in Federal Court
In April 2024, after a lengthy notice and comment period, the Federal Trade Commission (“FTC”) issued a final Rule banning nearly all post-employment non-compete agreements. On August 20, 2024, the U.S. District Court for the Northern District of Texas issued a sweeping decision in Ryan LLC v. Federal Trade Commission (“Ryan”) barring enforcement of the Rule, which was set to take effect on September 4, 2024.
In its decision, the Ryan Court held that the non-compete ban exceeded the FTC’s statutory authority, reasoning that the FTC lacks authority to promulgate substantive rules regarding “unfair methods of competition.” The court further held that the Rule is arbitrary and capricious, in violation of the Administrative Procedure Act, because the FTC failed to justify the universal breadth and “one-size-fits-all approach” of its ban. As a result, the court set aside the Rule.
As a result of the ruling, employers nationwide are relieved of their obligation to comply with the Rule come September. For now, employers may continue their prior practices related to non-compete agreements and have some additional breathing room to engage in contingency planning around the Rule’s application.
The Ryan decision is not the final word in the litigation challenging the FTC’s Rule as the FTC may appeal the court’s order. Employers should continue to monitor this case and other legal challenges in federal courts across the country.
For any questions about the FTC’s non-compete rule and related ongoing legal challenges, please contact Walsh’s Labor & Employment law practice group.
This article was authored by Walsh Pizzi O’Reilly Falanga LLP Associate, Priscilla E. Savage.