On August 20, 2024, Judge Ada Brown of the Northern District of Texas issued her much anticipated order which officially set aside the FTC's Final Rule Banning Non-Competes (the "Ban"), which we first brought to your attention on January 9, 2023 when she temporarily blocked the Ban as to the parties who filed that lawsuit. The FTC's Ban is now permanently blocked and employers can still enforce their valid and enforceable non-compete agreements.
Ryan v. Federal Trade Commission, was one of three cases monitored by our Labor and Employment team as the efforts to fight the implementation of the Ban transpired. Ryan, a tax firm, filed suit shortly after the FTC issued its final rule on April 23, 2024, alleging that: (1) the FTC exceeded its statutory authority; and (2) the Ban was arbitrary and capricious. On July 3, 2024, the Court concluded that Ryan was likely to succeed at trial and enjoined the FTC from implementing the Ban as to Ryan. After the final hearing on the merits, the Court blocked the Ban, prohibiting its enforcement nationwide and summarizing its findings by stating: "In sum, the Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC's promulgation of the Rule is an unlawful agency action."
The Ban was previously set to take effect on September 3, 2024 which would have superseded state law allowing for non-compete agreements, as well as:
- Banned existing non-compete agreements and rendered them unenforceable, except for those with senior executives in "policy-making" positions earning more than $151,164.00 per year;
- Prohibited employers from entering into future non-compete agreements with any employees;
- Required employers to provide notice to employees informing them that their existing non-competes were now unenforceable; and
- Provided for civil penalties for non-compliant employers.
This ruling serves as a strong rebuke to agency overreach, but the FTC has indicated its intent to appeal the ruling. Given recent developments in administrative law jurisprudence such as the Supreme Court of the United States' recent ruling in Loper Bright Enterprises v. Raimondo, which limited the authority of federal agencies, such an appeal is unlikely to be successful.
Employers can—finally—now rest easy as the status quo for non-competes will remain the law of the land. That said, it's critical that you ensure your non-compete agreements comply with state laws. If you have any questions or concerns about the enforceability of your employees' current non-compete agreements, please reach out to Gray Reed's Labor and Employment Practice Group.
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