Federal Judge Sets Aside the FTC’s Noncompete Ban

by Aleanna B. Siacon

Not so fast and not so final – for now. On August 20, 2024, U.S. District Judge Ada Brown in the U.S. District Court for the Northern District of Texas sided with a plaintiff group comprised of a limited liability company, a coalition of various business groups, and the U.S. Chamber of Commerce, and set aside the Federal Trade Commission’s (“FTC”) Non-Complete Clause Rule (“the Final Rule”).

While the Final Rule (which was scheduled to go into effect by September 4, 2024) is the subject of multiple ongoing lawsuits, Judge Brown’s decision in Ryan, LLC v FTC dealt the Final Rule the harshest blow to date and blocked its implementation nationwide.

Earlier, on July 3, 2024, Judge Brown issued a limited scope preliminary injunction, which stayed the Final Rule’s effective date but limited it to the Ryan plaintiffs. At the time, Judge Brown determined that the Final Rule (1) exceeded the FTC’s statutory authority under the FTC Act of 1914, (2) was arbitrary and capricious under the Administrative Procedures Act, and (3) would cause irreparable harm. However, the Ryan plaintiffs had not yet provided a briefing justifying a nationwide injunction, and Judge Brown declined to issue one at that point.

Judge Brown’s latest opinion considered the parties’ additional briefings, reiterated the above findings, and granted summary judgment in favor of the plaintiff and plaintiff-intervenors. In ultimately prohibiting the Final Rule’s nationwide implementation on September 4, 2024, Judge Brown explained that the FTC lacked statutory authority to promulgate the Final Rule and that the Court could not “conclude the Non-Complete Rule ‘fall[s] within a zone of reasonableness’ nor is it ‘reasonably explained.’”

Via its spokesperson, the FTC has expressed that it is seriously considering a potential appeal to the Fifth Circuit.

The Final Rule was passed via a 3-2 vote during the FTC’s April 23, 2024, Open Commission Meeting, and effectively banned noncompete agreements nationwide, with limited exception. See FTC Declares Employees Free from Most Noncompetes, But How Far Does the Ban Go and Will It Last? The same day, plaintiff, Ryan, LLC, brought suit against the FTC in the Northern District of Texas. A collection of plaintiffs, including the U.S. Chamber of Commerce, the Longview Chamber of Commerce, the Texas Association of Business, and others, followed with a lawsuit in the Eastern District of Texas on April 24, 2024, which was stayed. The U.S. Chamber of Commerce and a coalition of business groups subsequently intervened in Ryan.

Similar lawsuits have also been brought in the Eastern District of Pennsylvania (ATS Tree Services, LLC v FTC) and the Middle District of Florida (Properties of the Villages, Inc. v FTC).

The Northern District of Texas is the first to enter an order rejecting implementation of the Final Rule nationwide.

In contrast, on July 23, 2024, the Eastern District of Pennsylvania denied the plaintiff’s motion to stay the effective date and preliminarily enjoin the Final Rule – ultimately finding that the plaintiff failed to establish that (1) it would suffer irreparable harm absent injunctive relief, and (2) it had a reasonable likelihood of succeeding on the merits of its claims.

While the Ryan ruling hits pause on Final Rule, Dickinson Wright continues to monitor all case-by-case developments, including any potential appeals, that may affect the implementation of the FTC’s Final Rule. In the meantime, Dickinson Wright attorneys can assist in determining how this and other developments will affect existing and future employment agreements.