As we predicted back in our May post, the sky is not falling in the world of non-compete agreements. After the Federal Trade Commission (“FTC”) issued its controversial final rule on April 23, 2024, which voided existing non-competes and prohibited employers from entering into new ones (the “Final Rule”), a litany of court challenges immediately ensued.

The first of these challenges—filed the same day the Final Rule was issued—proved successful on Tuesday, August 20, when Judge Ada Brown of the Northern District of Texas, Dallas Division, granted the Plaintiffs’ motions for summary judgment and set the Final Rule aside, thereby preventing it from taking effect on September 4. Judge Brown reasoned in part that the FTC failed to justify “such a sweeping prohibition—that prohibits entering or enforcing virtually all non-competes—instead of targeting specific, harmful non-competes.”* She also noted that federal law required her to “hold unlawful” and “set aside” the non-compete ban with nationwide effect, and that all parties in all judicial districts across the country are equally covered by the ruling.**

The FTC now has the option of appealing Judge Brown’s ruling to the Fifth Circuit. Interestingly, FTC spokesperson Victoria Graham stated after the ruling that the FTC is “disappointed” and “seriously considering a potential appeal.” While the FTC’s statement could be read as signaling imminent appeal, the qualifying language might also signal an intent to forego appeal, scrap the Final Rule entirely, and issue a newer, narrower ban on non-competes—especially after the Supreme Court recently overruled Chevron and the deference it once granted to administrative agencies like the FTC.*** Only time will tell.

For now, the national trend towards limiting (or even voiding) non-compete agreements continues to grow. Thus, even if the Final Rule never takes effect, that does not mean there will not be a similar rule in the future that does limit or even prohibit non-competes entirely. Employers should therefore begin to carefully consider their options with regard to existing non-competes—including potential alternatives for achieving the same practical results. 

* Ryan, LLC v. Federal Trade Commission, No. 3:24-cv-00986-E (N.D. Tex. Apr. 23, 2024), ECF No. 211 at 24.

** Id. at 26–27.

*** Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2273 (2024).

[View source.]