On August 20, 2024, Judge Ada Brown of the U.S District Court for the Northern District of Texas, in Ryan LLC v. Federal Trade Commission, granted summary judgment in favor of the plaintiffs and plaintiff-intervenors (together, the Plaintiffs) and set aside the final rule (the Rule) of the Federal Trade Commission (FTC) banning most non-competes in the employment context across the country. Judge Brown declared that the Rule "shall not be enforced or otherwise take effect on September 4, 2024, or thereafter." In issuing the decision, Judge Brown concluded that the FTC lacks statutory authority to promulgate the Rule, and that the Rule is arbitrary and capricious. Thus, according to Judge Brown, the FTC's promulgation of the Rule is an unlawful agency action.
Judge Brown's nationwide injunction follows her July 1, 2024 order preliminarily enjoining the implementation and enforcement of the Rule against the Plaintiffs and staying the Rule's September 4, 2024 effective date as to the Plaintiffs only. As noted in our previous article, in issuing this ruling, Judge Brown stated her intention to rule on the merits of the case and dispose of the action on or before August 30, 2024.
The legal process regarding the Rule most likely is not finished playing out. Employers can expect the FTC to appeal the Ryan decision to the Fifth Circuit and the validity of the Rule to be ultimately decided by the Supreme Court.
What Should Employers Do Now?
Pursuant to the Rule, an employer does not violate the Rule if it
"has a good-faith basis to believe that [the Rule] is
inapplicable." In its explanatory support for the Rule, the
FTC states that "the absence of a judicial
ruling on the validity of the final Rule does not create a
good-faith basis for non-compliance." (emphasis added). Given
Judge Brown's August 20, 2024 holding in Ryan, there
currently exists a judicial ruling invalidating the Rule.
Consequently, whether or not Judge Brown's nationwide
injunction is eventually overturned, at the present, the
Ryan decision appears to provide employers with a good
faith basis for not complying with the Rule, and continuing to
enforce their non-competes.
We will continue to monitor these important developments and will provide updates as appropriate.Meanwhile, if you have any questions, please contact Lorna Hebert at [email protected].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.