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The FTC Noncompete Ban is Dead and Noncompetes are Alive: Federal Court Has Blocked the Rule 

The Federal Trade Commission (the “FTC”) issued a final rule broadly banning most noncompetes with workers (the “Rule”), which was set to take effect on September 4, 2024. The Rule has been subject to legal challenges in various jurisdictions, as we previously reported here. On August 20, 2024, a federal court in the Northern District of Texas permanently blocked the Rule from taking effect, issuing a nationwide injunction. Ryan LLC v. Fed. Trade Commission, 3:24-cv-00986 (N.D. Tex. 2024).

The Ryan court granted Plaintiff Ryan LLC and other Plaintiff-Intervenors’ (including the U.S. Chamber of Commerce, referred to herein as “Plaintiffs”) motion for summary judgment in its entirety declaring the Rule unenforceable. More specifically, it held that the FTC lacked statutory authority to engage in substantive rulemaking under Section 6(g) of the FTC Act, which is only a “housekeeping statute” governing “rules of agency organization procedure or practice.” The Ryan court also found that the Rule was arbitrary and capricious because it is “unreasonably overbroad without a reasonable explanation,” citing the FTC’s failure to consider appropriate alternatives and the dearth of support in its factual record for the “categorical ban.” Finally, the Ryan court concluded that “[p]laintiffs are entitled to summary judgment on all of their claims under the [Administrative Procedure Act] and Declaratory Judgment Act because the FTC exceeded its statutory authority in implementing the Rule, and the Rule is arbitrary and capricious.”

Expressing its disappointment, the FTC has announced that it is “considering an appeal” of the decision. The FTC also noted that it is still permitted to continue its efforts to protect workers from the ill effects of noncompetes “through case-by-case enforcement actions.”

Unless and until there is a further ruling on appeal and/or the FTC seeks and successfully obtains a stay of the injunction blocking the Rule pending appeal, employers do not need to issue notices about existing noncompetes. Nonetheless, noncompetes have been under continued scrutiny and employers would be well-advised to review and update their noncompetes (as well as nonsolicits) with their workers under applicable state law.

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Employment Notes, a newsletter produced by Tannenbaum Helpern Syracuse & Hirschtritt LLP’s Employment Law practice, provides insights on recent employment caselaw, legislation and other legal developments impacting employer policies, human resource strategies and related best practices. To subscribe to the newsletter, email marketing@thsh.com.

08.22.2024  |  PUBLICATION: Employment Notes  |  TOPICS: Employment

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