By now, employers across the country are aware of the Federal Trade Commission’s (“FTC”) pending rule banning the vast majority of non-competition agreements on a national level (the “Rule”). We have been tracking the Rule from its beginning, through various stages of the different legal challenges (here, here).

On August 20, 2024, the Rule was dealt a decisive blow when Judge Ada Brown of the United States District Court for the Northern District of Texas held that the Rule violates the Administrative Procedure Act (“APA”), and must be set aside. The ruling will almost certainly now be appealed to the Fifth Circuit Court of Appeals.

Judge Brown’s decision followed an earlier ruling in July, where she held that the Rule violated the APA because (i) the FTC lacks the authority to issue the Rule, and (ii) even if it does have the authority, the Rule was arbitrary and capricious based upon the administrative record. However, Judge Brown’s July ruling was an incomplete victory for 99.9% of employers because she limited the relief to only the litigants in the case itself.

The August 20, 2024 ruling is now a final ruling on the merits of the case and definitively voids the Rule across the entire country.

So, Do Employers Have to Do Anything on September 4?

No. Judge Brown’s ruling was final and has indefinitely set aside the Rule. Her order further prevents the FTC from seeking to enforce the Rule. This means that employers do not need to send out the notices that many have been scrupulously preparing to send.

What’s Next?

The FTC will almost surely appeal Judge Brown’s ruling to the Fifth Circuit Court of Appeals, which is the federal appellate court covering Louisiana, Mississippi and Texas. Once the case is in the appellate court, things could get complicated, as the appellate court could conceivably “stay” (i.e., pause) the lower court’s ruling pending the final appeal of the case. Thus, the Rule could potentially be back “on the books” by the end of the year. However, there is no guarantee the FTC will seek this relief or that the Fifth Circuit would even entertain this type of request.

More likely than not, the Fifth Circuit will not disrupt Judge Brown’s ruling until the final appeal is submitted and all stakeholders have an opportunity to be heard. This process could take several months or longer.

From there, because of its importance, the case will likely end up at the U.S. Supreme Court regardless of who wins at the intermediate appellate level.

While the future of the Rule is still somewhat unclear given the appellate process, Judge Brown’s ruling is now the law unless and until the Fifth Circuit and/or Supreme Court rule otherwise. Should either court reverse the ruling and reinstate the Rule, the FTC will likely provide reasonable time for employers to prepare for a new effective date — meaning, it will not come as a surprise and sneak up on anyone.

For now, employers can press “save” on their draft notices and listservs, and put them to the side until they hear otherwise.

We are staying up to date on these issues and will provide updates as information is released.