Update – FTC Non-Compete Clause Rule on Limited Hold

On July 3, 2024, the court in Ryan, LLC v. FTC, a case in the Northern District of Texas, stayed the Federal Trade Commission’s (FTC’s) Non-Compete Clause Rule and granted the plaintiff’s emergency motion for a preliminary injunction.

The court limited the scope of the stay and injunctive relief to the named plaintiffs due to concerns about standing and redressability for nationwide relief. As noted in our April 29, 2024, May 7, 2024, and May 23, 2024 blog posts, the FTC Non-Compete Clause Rule is currently scheduled to become effective on September 4, 2024. Although the most recent Ryan ruling does not change the obligation of other companies to comply by this date, the court says it will enter a final order on the merits by August 30, 2024, which could ultimately have nationwide implications.

In its ruling, the court concluded that the plaintiffs were likely to succeed on the merits because: (1) the FTC exceeded its statutory authority in implementing the Non-Compete Clause Rule; and (2) even if the FTC had the statutory authority, the Non-Compete Clause Rule is nonetheless arbitrary and capricious under the Administrative Procedure Act (APA). It differentiated the FTC’s rule from state rules banning non-compete clauses by saying that “no state has ever enacted a non-compete rule as broad as the FTC’s.” The court also cited the recent Supreme Court decision that struck down a longstanding doctrine called Chevron Deference, indicating a shift in case law towards restricting agency authority.

It is likely that an appeals court will review the district court’s final decision. If the FTC Non-Compete Clause rule is struck down, employers will continue to be subject to state non-compete laws. While a few states have completely banned non-competes, most states (including Florida) have only imposed some restrictions.

Williams Parker is closely monitoring developments and will provide updates as they become available. For a copy of the published FTC Non-Compete Clause Rule, go to: https://www.federalregister.gov/documents/2024/05/07/2024-09171/non-compete-clause-rule.