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Employment Law Update: The FTC Non-Compete Roller Coaster Continues

On July 3, 2024, the United States District Court for the Northern District of Texas, in Ryan, LLC v. Federal Trade Commission, issued a preliminary injunction and ruled it was a substantial probability that the Federal Trade Commission (FTC) lacks authority to issue its April 23, 2024, Final Rule generally nullifying all non-compete provisions, which becomes effective September 4, 2024. The injunction is only a temporary halt, and the Ryan court promised a full decision before August 30, 2024, just a few days before the Rule’s September 4 effective date.
 
To be clear, the Ryan decision only applies to the plaintiffs in that case and does not represent a nationwide injunction. Therefore, for any entity not involved in the case, the FTC Rule remains in place. That may well change depending upon the outcome of a case pending in a Pennsylvania federal district court seeking to stay the action of the FTC on a national basis, with a decision expected by July 23, 2024 (ATS Tree Services, LLC v. Federal Trade Commission).
 
For the majority in the employment law community, the injunction was not a surprise. The decision stands consistent with recent decisions of the Supreme Court broadening the scope of judicial review of federal agency action. Indeed, the Texas trial court echoed the sentiment of the Supreme Court, noting that while federal agencies may issue procedural guidelines, they exceed their authority when issuing substantive laws.
 
Finally, any decision concerning the enforceability of the FTC Final Rule will have no impact upon state-issued laws concerning the enforceability of non-compete agreements. Restrictions passed by state legislatures are unaffected.
 
Employers maintaining non-compete contracts are well advised to stay in close contact with Whiteford’s Labor and Employment team as we continue to monitor the legal landscape on this important issue. 

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