Texas District Court Strikes Down the FTC’s Non-Compete Ban on a Nationwide Basis

On August 20, 2024, in Ryan LLC v. Federal Trade Commission, Judge Ada Brown of the U.S. District Court for the Northern District of Texas barred the Federal Trade Commission’s (“FTC”) Non-Compete Rule (the “Rule”) from taking effect on a nationwide basis. Prior to this decision, the Rule, which sought to prohibit virtually all worker non-compete agreements, was scheduled to take effect on September 4, 2024.

As we previously reported, on July 3, 2024, Judge Brown issued a preliminary injunction that blocked enforcement of the Rule against only the plaintiff and plaintiff intervenors, including the U.S. Chamber of Commerce (collectively, the “plaintiffs”). In that preliminary 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 granting the plaintiffs’ motion for summary judgment in this most recent decision, the Court largely affirmed its previous preliminary conclusions in the July 3, 2024 opinion. Namely, Judge Brown concluded that the FTC exceeded its statutory authority in promulgating the Rule. Further, even if the FTC had legal authority to issue the Rule, Judge Brown invalidated the Rule because the Court found it to be arbitrary and capricious. Indeed, Judge Brown wrote: “The [FTC’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.” In sum, the Court set aside the Rule and ordered that the “Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.”

FTC spokesperson Victoria Graham stated that the FTC was disappointed with the ruling and is “seriously considering a potential appeal.” She further reiterated that the ruling does not prevent the FTC from attacking non-competes through case-by-case enforcement actions.

Employers are well advised to stay up-to-date with any possible appeal of this decision. While the Rule will no longer go into effect on September 4, 2024 (or ever for that matter), individual state restrictions on non-compete agreements remain in effect and employers should also be aware of pending state legislation in this area.