FTC Non-compete rule blocked by a Federal Court in Texas

BREAKING NEWS!

STOP THE PRESSES AND HALT THE NOTICES:  FTC NONCOMPETE RULE ENJOINED NATIONWIDE

On August 20, 2024, the U.S. District Court for the Northern District of Texas issued its eagerly awaited ruling in Ryan LLC on the legality of the Federal Trade Commission’s (“FTC”) ban of non-compete agreements, enjoining the Final Rule from going into effect nationwide as scheduled on September 4, 2024.

As we previously reported in April and in July, the Final Rule that the FTC issued in April 2024 has been under attack since it was first released, with litigation filed in multiple forums challenging its enforceability.  This latest decision creates a split between the federal courts in the Northern District of Texas and the Middle District of Florida on the one side and the Eastern District of Pennsylvania on the other.  In this latest ruling, granting summary judgment to the plaintiffs challenging the Rule, the court concluded that the FTC exceeded its authority and that the Final Rule itself was arbitrary and capricious in that the FTC did not consider less disruptive alternatives or exceptions before issuing a blanket, one-size-fits-all ban.    

What does this mean for employers?

Essentially, the injunction reverts the playing field to the status quo prior to the FTC issuing its Final Rule in April.  Employers need not issue notices to current and former employees subject to non-competes notifying them that the covenants will not be enforced for the time being. 

That said, it is always a good idea for employers to periodically take stock of their restrictive covenant agreements and ensure they are narrowly tailored to support legitimate business interests consistent with governing state law.  Consider whether the same protections can be achieved with non-solicitation, non-interference, and non-disclosure covenants.  Courts rarely like precluding individuals from pursuing their livelihood, so non-competition covenants – while no longer banned – are still disfavored.  

Jennifer Platzkere Snyder, Marjorie Obod, and the rest of the Dilworth Paxson LLP labor and employment team stand ready to assist you in reviewing existing restrictive covenant agreements as well as tailoring them to maximize enforceability going forward. We will also continue to monitor and report on further legal developments in this area, as the FTC considers appealing the Ryan LLC ruling to the U.S. Circuit Court for the Fifth Circuit.