After much anticipation, on August 20, 2024, in Ryan v. Federal Trade Commission, a Texas federal court judge set aside the Federal Trade Commission’s Non-Compete Rule. As we reported earlier, the Rule purported to ban most non-competes in employment and was set to take effect on September 4, 2024. In ruling on dueling motions for summary judgment filed by the parties, the Court held that the FTC lacks broad rulemaking authority to regulate unfair competition by implementing a nationwide ban on non-compete agreements. The Court set aside the Rule, and ordered that the Rule is not to be enforced. The ruling applies to employers nationwide.
Employers that have entered into non-compete agreements with employees can breathe a sigh of relief, knowing that the Rule will not go into effect—at least for now. It is anticipated that the FTC will appeal to the U.S. Court of Appeals for the Fifth Circuit.
There is also ongoing litigation in other federal courts. The validity of the rule is likely to come before the Third, Fifth, and Eleventh Circuits, and the possibility of circuit conflict also means that the issue could potentially receive Supreme Court review. At the same time, states are also undertaking their own efforts to restrict non-compete clauses under state law.
Employers should note that, even without the Rule, the FTC still may challenge overbroad non-compete agreements under antitrust and consumer protection laws, and various state laws still govern non-compete clauses. So, while employers may continue to use non-compete restrictions as a tool in their arsenal to protect key relationships and confidential information, these agreements should be carefully reviewed to ensure they are narrowly tailored to protect legitimate business interests and comply with state law. Employers are also advised to consider the panoply of other measures to protect their confidential and proprietary information, such as non-solicitation agreements, confidentiality, and non-disclosure agreements.
Gallagher & Kennedy, P.A. will continue to monitor and report on any federal and state developments.
read Haley's recent articles on preparing for future potential attempts to ban non-competes:
- Employer Alert: The FTC’s New ‘Non-Compete Rule’ - Published by In Business Magazine, August 1, 2024
- Court Stays and Enjoins FTC Non-Compete Ban—But No Nationwide Impact on Employers: What It Means for Your Business - Client Alert, July 12, 2024
- Breaking News in Employment Law: Final Rules Unveiled Banning Non-Compete Agreements and Increasing Overtime Pay Eligibility - Published by AZBIGMEDIA, May 1, 2024
- The Employer’s Planner for 2024: 5 Key Changes and Issues in Employment Law That Every Business Owner Should Know - Published by the Phoenix Business Journal, February 1, 2024
About the author
Haley Harrigan represents and counsels individuals, small businesses, franchised operations, and large companies on a wide range of employment and business disputes, and litigates matters spanning labor and employment, commercial litigation, and general liability. She serves as chair of the firm’s employment and labor law department.