The United States District Court for the Northern District of Texas issued an order blocking the Federal Trade Commission’s (FTC) non-compete ban from taking effect on Aug. 20, 2024. In Ryan LLC v. Federal Trade Commission, 2:24-cv-986, Plaintiffs successfully argued that the FTC exceeded its statutory authority in propounding a nationwide ban on non-compete agreements. Originally set to take effect on Sept. 4, 2024, the ban—which would have voided millions of employment agreements—has now been paused as a result of the decision.
Judge Ada E. Brown ruled that the FTC did not have the authority to issue a rule with such broad and sweeping implications. “The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition . . . instead of targeting specific, harmful non-competes, renders the rule arbitrary and capricious,” Brown wrote. Importantly, her decision applies across the country.
Impact of the proposed non-compete ban
The ban would have rendered all existing and new non-compete agreements invalid, with only a handful of exceptions. The rule also would have prohibited employers from entering into new non-compete agreements with employees, with only one exception for “senior executives” earning more than $151,164 per year annually who are in a “policymaking position.” The rule would have also required employers to provide notice to workers that their current non-compete agreements were no longer valid.
The fight is likely not over, however, as a spokesperson for the FTC said the agency was disappointed with the ruling and is “seriously considering a potential appeal.”
What employers should do now
So, what does this mean for employers who have non-competes in place or who are looking to enter into non-competes with employees in the future? The court’s decision provides some much-needed certainty. For now, employers can continue to enforce these agreements and can enter into new ones that are otherwise compliant with applicable laws. Now would also be a good time to ensure existing non-competes are compliant with the state laws in which employers have operations, as the FTC stated the decision “does not prevent the FTC from addressing non-competes through case-by-case enforcement actions.”
If you have any questions on the ruling, please contact Kelsey Gee or Jennifer Huelskamp in the Porter Wright Labor & Employment Department.