The FTC’s effort to implement a nationwide ban on the use of most non-compete agreements has been stalled indefinitely following a recent court ruling by a district court judge in Texas. Specifically, in Ryan, LLC v. FTC, U.S. District Judge Ada Brown issued a ruling blocking the FTC’s final rule from going into effect, finding that the FTC “lack[ed] statutory authority to promulgate the Non-Compete Rule” and noting that the FTC’s rule was “arbitrary and capricious” as the FTC failed to provide a reasonable explanation to justify the breadth of the rule.
Originally issued in May, the FTC’s final rule would have banned employers across the country from requiring employees to enter into a noncompete agreement as a condition of employment. The FTC’s final rule also would have invalidated almost all existing non-compete agreements and required employers to proactively inform employees and former employees that their existing non-compete agreements would no longer be enforceable. The final rule had been intended to go into effect earlier this month, on September 4, 2024. In light of Judge Brown’s ruling, however, the FTC’s final rule is barred indefinitely. It is possible that the FTC will appeal the decision; the deadline to do so is October 19, 2024.
Much like the FTC’s noncompete ban itself, Judge Brown’s ruling will not have much of an impact for employers operating in California, given the state’s already existing comprehensive ban on non-competes. As a reminder, California has a well-established broad ban on the use of noncompete agreements and restrictive covenants with very limited exceptions, including in connection with the sale of a business. In fact, California required that employers send notice of the invalidity of an illegal non-compete agreement earlier this year. Thus, while Judge Brown’s ruling applied to strike the FTC’s rule, similar California laws remain in effect. Employers operating in California, therefore, should not make any immediate plans to implement new noncompete agreements without consulting with qualified legal counsel.
