In a significant development in the world of non-competes, a federal court has issued a nationwide injunction of the Federal Trade Commission’s (FTC) attempt to implement a nationwide ban on non-compete agreements. The case is Ryan, LLC vs. Federal Trade Commission.
The rule, which was to take effect on September 4, 2024, would have prohibited employers from enforcing non-compete clauses in most cases, affecting an estimated 30 million Americans. However, Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled that the FTC lacks the statutory authority to enact such a sweeping rule without congressional approval, deeming the rule “arbitrary and capricious.”
This ruling is a major setback for the FTC, which has argued that non-compete agreements restrict workers’ economic mobility and are detrimental to fair competition. Business groups, on the other hand, have contended that these agreements are crucial for protecting business interests, fostering innovation, and ensuring growth. The ruling is part of a broader legal battle involving multiple lawsuits against the FTC’s rule in various states, including Texas (where the nationwide injunction was issued and seems likely to be appealed), Florida (where an injunction was issued but only applied to the plaintiffs in the case), and Pennsylvania (where the court declined to issue an injunction stating the plaintiff had not demonstrated the necessary likelihood of success on its challenge to the ban).
The implications of this court decision are profound, as it not only halts the immediate implementation of the non-compete ban but also sets the stage for further legal challenges that could potentially nullify the rule entirely. Despite the roll-back of the Chevron doctrine (which for decades gave great deference to agency interpretation) by the Loper Bright decision, FTC is expected to appeal the decision. The case underscores the ongoing tension between regulatory efforts to protect workers and business interests in the evolving landscape of employment law.
The U.S. Chamber of Commerce President and CEO Suzanne P. Clark stated “This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions. A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage…We remain committed to holding the FTC — and all agencies — accountable to the rule of law, ensuring American workers and businesses can thrive.”
For now, non-competes remain subject to state specific statutes and case law, and their enforceability is typically highly dependent on the particular facts and circumstances of any given case. If your business relies on non-compete agreements or you’re concerned about how this ongoing legal battle might affect your operations, it’s crucial to stay informed and prepared. At Wilson Ratledge, our team of experienced attorneys is here to help you navigate these complex legal changes and ensure your business remains compliant with the latest regulations. Contact us today to discuss how we can protect your business interests and provide tailored legal strategies to help you succeed.