The FTC’s highly publicized nationwide ban on noncompetes is on hold. The federal rule, which was originally scheduled to go into effect on Sept. 4, was struck down yesterday by a federal court in Texas. The court’s ruling prohibits the FTC from enforcing the noncompete ban and provides nationwide relief for employers. The ruling maintains the status quo for now.
“The FTC lacks statutory authority to promulgate the noncompete rule,” and its issuance of the rule was “an unlawful agency action” requiring the rule to be set aside in its entirety, said Judge Ada Brown in the U.S. District Court for the Northern District of Texas in her Aug. 20 ruling on Ryan LLC v. Federal Trade Commission.
Judge Brown left no doubt about the impact of her ruling, stating clearly that “the [FTC’s noncompete] rule shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”
Ryan is the same case in which Judge Brown dealt the first blow to the FTC noncompete rule when she issued a preliminary injunction, partially blocking the federal ban on July 3.
Unlike the court’s earlier ruling which only applied to the parties in the lawsuit, the Aug. 20 final judgment applies to all employers and employees across the country. Judge Brown made it clear that this final ruling setting aside the noncompete rule “has nationwide effect, is not party-restricted, and affects persons in all judicial districts equally.”
Judge Brown’s prior ruling had indicated that she was inclined to reject the noncompete rule on the basis that the FTC did not have the authority to issue such a rule and had overreached in doing so. Those initial indications were confirmed yesterday when Judge Brown issued a final judgment setting aside the noncompete rule in its entirety.
In April 2024, the FTC voted to adopt the noncompete rule, which would have effectively banned nearly all forms of non-compete agreements, including most existing non-competes. The noncompete rule would have also required employers to send written notice to all employees subject to non-compete agreements that those noncompetes were no longer in effect and would no longer be enforced. However, those requirements and prohibitions have been suspended and will no longer go into effect following Tuesday’s ruling in Ryan LLC v. Federal Trade Commission.
In a statement released late yesterday to national media, FTC spokesperson Victoria Graham said the agency is “seriously considering a potential appeal” of Judge Brown’s decision. If the FTC were to move forward with an appeal, it would be heard at the U.S. Court of Appeals for the Fifth Circuit.
Before all is said and done, the Supreme Court of the United States may ultimately be asked to decide the constitutionality and enforceability of the FTC noncompete ban. We will continue to monitor developments and provide updates as the appeal process unfolds.
