The Advisors' Blog

Yesterday, in Ryan v. Federal Trade Commission, a federal judge in the Northern District of Texas struck down the non-compete ban that the FTC adopted earlier this year, saying that the agency exceeded its authority and that the rule was arbitrary and capricious. The court order blocks the rule on a nationwide basis – expanding the preliminary injunction that the judge issued last month. Specifically, the opinion says:

The Court sets aside the Non-Compete Rule. Consequently, the Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024 or thereafter.

This WaPo article says the FTC is considering an appeal, and that in the agency’s view, the decision doesn’t prevent the FTC from addressing non-competes through case-by-case enforcement actions. The article continues:

Julie Levinson Werner, an employment attorney and partner at Lowenstein Sandler in New York, said the varying opinions and likely appeals in the three cases make it probable that the noncompete rule will eventually be reviewed by the Supreme Court. But for now, the Texas court’s ruling puts the law around noncompetes back to the status quo, Werner said.

“Everybody who was under the impression that they were going to have to initiate sending out notices to employees and telling them that their noncompetes were no longer in effect are not required to do that,” she said.

Although the FTC’s national ban has been struck down, individual state restrictions on noncompete agreements remain in effect. For example, California, North Dakota and Oklahoma have had at least some prohibitions on noncompete clauses for more than a century. Laws in other states stipulate that noncompete agreements cannot be used for employees falling below a certain salary threshold or earning an hourly wage.

As always, you should consult your own employment lawyers on this topic. But many companies will view this ruling as favorable, and it marks another loss for the “administrative state.”

– Liz Dunshee