August 21, 2024 Written by: Erik Derr, Esq.
Employers everywhere, take a deep breath—the September 4, 2024 effective date for the Federal Trade Commission’s (“FTC”) ban on non-compete agreements (the “FTC Rule”) has been set aside.
After a four month battle in the United States District Court for the Northern District of Texas in the action captioned Ryan LLC v. Federal Trade Commission¸ Civil Action No. 3:24-CV-00986-E, Judge Ada E. Brown granted summary judgment in favor of Ryan, LLC (“Ryan”), finding that the FTC lacks authority to create substantive rules precluding alleged unfair methods of competition.
In doing so, the Court set aside the FTC Rule, meaning that the FTC Rule shall not be enforced or take effect on September 4, 2024, “or thereafter”. This ruling is different from the July 3, 2024 preliminary injunction granted in Ryan, which only granted injunctive relief as to Ryan itself. The August 20, 2024 order precludes enforcement and implementation of the FTC Rule nationwide. What does this mean? Practically, employers who were preparing the notices required under the FTC Rule for distribution before the prior September 4, 2024 effective date can stand down. Those who have already issued these notices should rescind them through the same means in which they were distributed, if they so choose.
That is, on the federal front, the landscape of non-competes reverts to the “status quo” as it was on April 22, 2024, the day before the FTC Rule was handed down. While the FTC may appeal Judge Brown’s Order to the Fifth Circuit, the Fifth Circuit is a traditionally conservative bench, which may lean towards upholding Judge Brown’s order and precluding enforcement of the FTC Rule.
Employers should note that the ruling in Ryan does not prevent measures to ban non-competes at the state level. To the extent restrictions on non-competes loom in your jurisdiction, it may be wise to consider long term adjustments to employee contracts, similar to those that may have been contemplated in the face of the now defunct FTC Rule enforcement deadline.
Be sure to follow along with Becker’s Staffing Practice for more insights as the battle for clarity on the FTC Rule continues in the courts.