Contributors

Eric P. Weiss

Principal

As we reported on May 27, 2024, on April 23, 2024 the Federal Trade Commission (“FTC”) announced its Final Non-Compete Clause Rule (“Final Rule”), which bans post-employment non-compete clauses between employers and their workers. The Final Rule was to become effective on September 4, 2024.

We also noted that there were at least three lawsuits challenging the Final Rule including one brought by a company called Ryan, LLC pending in the U.S. District Court for the Northern District of Texas. Ryan sought to vacate and set aside the Final Rule.

On August 20, 2024, the U.S. District Court in Ryan, LLC v. FTC granted Plaintiff’s motion for summary judgment holding that the Final Rule is unlawful and ordering that it shall not take effect on September 4, 2024, or any time thereafter. In essence, the court held that the FTC lacks any substantive rulemaking authority with respect to unfair methods of competition. In addition, the court found that the Final Rule is invalid because it is arbitrary and capricious.

Although the ruling is from one court, it prevents the FTC from enforcing the Final Rule against any company nationwide.

Rulings in other cases challenging the final rule

On August 14, 2024, a district court in the Middle District of Florida entered a limited preliminary injunction prohibiting the enforcement of the Final Rule against the plaintiffs in Properties of the Villages, Inc. v. Federal Trade Commission. That court concluded that the plaintiffs were likely to succeed on their argument that the FTC lacked statutory authority to promulgate the Final Rule. The reasoning by the court is virtually identical to the court’s reasoning in Ryan.

By contrast, a district court in the Eastern District of Pennsylvania declined to grant a preliminary injunction against enforcement of the Final Rule in ATS Tree Services, LLC v. Federal Trade Commission, holding that the plaintiff had failed to establish a reasonable chance of success on the merits of the argument that the Final Rule exceeded the FTC’s statutory authority, among other arguments. Regardless of this ruling, the decision in Ryan prevails such that the Final Rule cannot be enforced anywhere in the country.

What’s next?

The FTC may appeal the Ryan decision which would be heard by the U.S. Court of Appeals for the Fifth Circuit and possibly the U.S. Supreme Court. However, both of these courts have recently issued decisions curtailing the power of federal agencies.

Next steps for employers

As a result of this decision, employers may hold off on preparations to comply with the FTC’s rule and should continue to monitor the appellate process in the Ryan case.

We will continue to monitor the status of the Ryan case, as well as the other cases involving challenges to the Final Rule and will provide updates.