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On August 20, 2024, the United States District Court for the Northern District of Texas ("Court”) granted summary judgment to a group of plaintiffs, including Ryan LLC and the United States Chamber of Commerce, and held that the FTC’s Rule banning most non-competition agreements, which was to go into effect on September 4, 2024, is invalid and unenforceable.

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Importantly, the Court held that its decision invalidating and setting aside the FTC Rule has nationwide effect. Accordingly, the Court concluded: “The Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.” A link to the FTC Rule is <a href="https://www.federalregister.gov/documents/2024/05/07/2024-09171/non-compete-clause-rule" target="_blank" rel="noopener">here</a>. A link to the Court Decision is <a href="https://www.michaelbest.com/portalresource/Ryan_LLC_v_FTC_Memorandum_Opinion_and_Order" target="_blank" rel="noopener">here</a>.

The Court found that the FTC Rule is in excess of the FTC’s statutory authority, and that the FTC Rule is “arbitrary and capricious.”  On this issue, the Court explained that the FTC Rule “imposes a one-size-fits-all approach with no end date, which fails to establish a rational connection between the facts found (by the agency) and the choice made.”  The Court also opined that the FTC’s Rule “prohibits entering or enforcing virtually all non-competes – instead of targeting specific, harmful non-competes,” and this renders it arbitrary and capricious.

As a result of this ruling, no action is required on the part of businesses potentially affected by the FTC Rule.  The notices contemplated under the FTC Rule do not need to be sent. Businesses do not need to stop utilizing or issuing their non-compete agreements.

The FTC has stated that it will likely appeal the ruling to the Fifth Circuit.  Thereafter, it is possible that the case could be appealed to the United States Supreme Court.  While we do not have a crystal ball to see the outcome of these appeals, both the Fifth Circuit and the United States Supreme Court have been sensitive to administrative overreach so we do not anticipate this decision to be overturned.

We will monitor litigation regarding the FTC Rule as it continues through the appellate process.  As we have indicated in previous alerts, there have been a number of state-law legislative and judicial changes regarding non-competition agreements over the past several years, and this remains a good time for businesses to revisit and revise their current template agreements, as appropriate, in order to account for the recent changes.

Please feel free to reach out to your MBF attorney to discuss further.

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FTC Rule Banning Noncompetes Invalidated Nationwide

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