District Court Judge Issues Preliminary Injunction Blocking Enforcement of FTC’s Non-Compete Ban

On July 3, 2024, in Ryan LLC v. Federal Trade Commission, Judge Ada Brown of the U.S. District Court for the Northern District of Texas issued a preliminary injunction against the enforcement of the Federal Trade Commission’s (“FTC”) Non-Compete Rule (the “Rule), which we previously reported prohibits the vast majority of employee non-compete agreements. Significantly, the ruling blocks the FTC from enforcing the Rule against only the plaintiff and plaintiff intervenors, including the U.S Chamber of Commerce (collectively, the “plaintiffs”). The court declined to issue a preliminary injunction against the Rule on a nationwide basis. That being said, this is the first (and potentially not last) major blow to the FTC’s Rule, which faces a very uncertain fate.

In the Ryan LLC decision, the court found that plaintiffs satisfied all legal requirements for the issuance of the preliminary injunction, including establishing a likelihood of success of prevailing on the arguments that the FTC lacked statutory authority to issue the Rule and that the FTC’s actions were arbitrary and capricious and overbroad in that the Rule “imposes a one size fits all approach with no end date.” The injunction prohibits the FTC from enforcing the Rule against the plaintiffs until the court issues a final ruling on the merits, which the court expects to do on or before August 30, 2024 (i.e., only several days before the Rule’s current effective date of September 4, 2024). Thus, the Rule is still scheduled to go into effect for all employers, except the plaintiffs in this action, unless a broader injunction is entered, by the Ryan LLC court or another court, between now and the September 4, 2024 effective date.

Importantly, the U.S. District Court for the Eastern District of Pennsylvania may soon issue its decision on a motion for a preliminary injunction against enforcement of the Rule in ATS Tree Services, LLC v. Federal Trade Commission. In that case, the court scheduled oral argument on the plaintiff’s motion for July 10, 2024, signaling that the court plans to issue a ruling prior to the Rule’s September 4, 2024 effective date. Depending on how the ATS Tree Services, LLC court rules, a circuit split could ensue, requiring resolution by higher courts and further complicating the state of the law on non-competes.

Overall, the issuance of the preliminary injunction in Ryan LLC emphasizes the real possibility that the Rule does not survive legal challenge and may ultimately never go into effect. We will continue to report on any legal developments. In the meantime, employers must also continue to be mindful of developing state law in this area and should speak with counsel regarding strategic considerations in navigating the uncertain non-compete legal landscape.