On August 20, the U.S. District Court for the Northern District of Texas (the Texas court), in RYAN LLC v. FTC, set aside the FTC's Final Rule (the Rule) banning non-competition agreements nationwide. The court found that the Rule was promulgated in excess of the FTC's statutory authority and that it was arbitrary and capricious.
In the final judgment issued by the Texas court, it was clearly stated that the FTC's Rule is unlawful and should be enjoined. The reasons for the enjoining in question are as follows:
- The FTC Act's text and structure indicate that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 5. Therefore, the Rule is unlawful.
- The FTC's final Rule is 'arbitrary and capricious' because it is unreasonably overbroad without a reasonable explanation.
- The Rule imposes a one-size-fits-all approach with no end date that fails to establish 'a rational connection between the facts found and the choice made.'
This development may be interpreted as a victory for employers, as it allows them to enforce existing non-competition agreements and create new ones. However, the legal process regarding the Final Rule is not entirely over. As a matter of fact, the way of appeal is open and the case may be taken to the Supreme Court.
(Northern District of Texas – 20.08.2024, 3:24-cv-00986-E)
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