Mere months after the Federal Trade Commission (FTC) approved a final rule banning almost all worker noncompete clauses, the US District Court for the Northern District of Texas granted in Ryan LLC v. Federal Trade Commission the plaintiffs’ preliminary injunction motions, halting the noncompete rule for just those plaintiffs in that case. The court found that the FTC likely exceeded its statutory authority and acted arbitrarily and capriciously.
A few months later, the same court entered a final judgment on August 20 granting the plaintiffs and plaintiff-intervenors’ motions for summary judgment, asking the court to set aside the rule. The Ryan court made clear at numerous points in its order that “the question to be answered is not what the FTC thinks it should do but what Congress has said it can do.” Against that backdrop, the court found the rule unlawful and held that (1) the FTC lacked the substantive rulemaking authority to promulgate the ban and (2) the ban was arbitrary and capricious because it was unreasonably overbroad and without explanation.
In rejecting the FTC’s argument that any relief should be limited to the named plaintiffs, the Ryan court stated that it “must hold unlawful and set aside the FTC’s Rule as required under the Administrative Procedures Act.” To this end, the court’s relief is not “party-restricted” and instead has a “nationwide effect.” The court thus held “unlawful and set aside the Rule,” ordering that “the Rule shall not be enforced or otherwise take effect on its effective date of September 4 or thereafter.”
It is unclear whether the FTC will appeal. If it does, one can likely expect an unsympathetic panel of justices in the Fifth Circuit.
While the Ryan ruling means the FTC’s proposed final rule will not be enforced pending further appeal, employers and their legal counsel should remain mindful when drafting noncompete clauses that such clauses remain subject to applicable state laws, which vary by state, and that the FTC still has the ability to bring individual enforcement actions to challenge specific noncompete clauses that it deems violate federal law. Employers may want to seek the advice of legal counsel to ensure their existing noncompete clauses are in compliance with all applicable laws and continue to monitor state laws for any changes that might affect existing noncompete clauses in the wake of the Ryan ruling.
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