In April, the Federal Trade Commission issued a rule banning most non-compete clauses (the “Rule”).
Last week, a federal court in the Northern District of Texas in Ryan LLC v. FTC enjoined the application of the Rule but limited the injunction to the specific plaintiffs in the case. Docket No. 3:24-cv-00986 (N.D Tex. Apr 23, 2024). In other words, the Court’s ruling does not enjoin the Rule on a nation-wide basis. The judge in the case has promised to render a final ruling by August 30, before the Rule’s initial September 4 enforcement date.
In deciding to grant the injunction, the Court held (1) the FTC exceeded its authority in issuing the Rule and (2) even if the FTC had the authority to make substantive rules, the Rule is arbitrary and capricious. The injunction does not extend to all businesses, rather it only applies to those involved in the litigation. The court’s holding for the injunction indicates that its likely to rule that the Rule is unlawful and not enforceable.
Another case challenging the Rule is currently pending in the Eastern District of Pennsylvania, ATS Tree Services, LLC v. Federal Trade Commission. No. 2:24-cv-01743 (E.D. Pa.). If the Pennsylvania court does not grant an injunction, the Supreme Court of the United States may weigh in on the issue.
The future of the Rule remains unclear, but we expect additional court ruling to be forthcoming.
We will provide more information as it becomes available. If you would like to discuss the Rule and its implications for your company, please contact Rachel Felton, Neva Stotler, or other members of our employment law team.
This article should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only and you are urged to consult a lawyer concerning your own situation and legal questions.
