Recent headlines implying a general a stay of the Federal Trade Commission’s non-compete rule are misleading. Here’s what employers need to know.
On April 23, 2024, the Federal Trade Commission approved a rule banning most non-compete agreements nationwide, effective September 4, 2024. This rule was met with several lawsuits, including Ryan, LLC v. Federal Trade Commission, pending in the Northern District of Texas, seeking to invalidate the rule.
On July 3, 2024, Judge Ada Brown of the U.S. District Court for the Northern District of Texas granted an injunction against the FTC blocking it from enforcing the non-compete rule but only as to the specific plaintiffs in that case. For now, the Ryan Court’s analysis and decision does not impact any other employer and does not enjoin the FTC from enforcing the rule with respect to any other employer, aside from the few named plaintiffs in that action.
Given the Ryan Court’s extensive examination of the substantive legal issues in its July 3, 2024 order and its finding, unequivocally, that the FTC lacked the authority to issue the non-compete rule, the Ryan Court will almost certainly follow its own analysis and enter an order on the merits finding the rule invalid or unenforceable. Judge Brown promised a ruling by August 30, 2024. Nevertheless, given that the Ryan Court may limit the scope of the ultimate relief it enters—as it has done already—it remains possible that the FTC’s non-compete rule will become effective on September 4, 2024 and enforceable against the majority of employers across the country. Moreover, because of the notice provisions in the FTC rule, absent any further developments, employers may decide to prepare for next steps before a decision in the Ryan litigation. There are also challenges to the rule pending in federal courts in Pennsylvania and Florida. Decisions in those matters before the September 4th effective date could clarify or further muddy the waters.
Our initial review is that Judge Brown is correct and that the FTC exceeded its authority in issuing the noncompete ban. Judge Brown’s opinion and a recent SCOTUS decision in Loper Bright should give employers strong defenses against claims for violations of the FTC ban. However, employers that rely heavily on non-compete agreements should review their form agreements, policies and practices and may want to begin taking steps now to prepare for the possibility that the non-compete rule, and its notice requirement, will become effective on September 4th. The preparations employers should take now will vary depending on the circumstances and risk tolerance of each client.
For a description of the FTC Rule, see: The FTC Votes to Ban Non-Compete Agreements
For an analysis of the issues in Loper Bright, see: In Loper Bright and Relentless, Supreme Court returns to high-stakes question of viability of the Chevron doctrine
