On August 20, 2024, a Texas federal court blocked the Federal Trade Commission’s (FTC) Noncompete Rule scheduled to go into effect on September 4, 2024. In April 2024, Warner Norcross + Judd LLP circulated a summary of the rule’s contents here and the Law Shanty discussed the rule further here. Unlike a preliminary injunction entered earlier this year, which only applied to the specific parties involved in the case, the court’s decision in Ryan LLC v. Federal Trade Commission has a “nationwide effect,” is “not party-restricted” and “affects persons in all judicial districts equally.”
In reaching this decision, the court found that the FTC violated the Administrative Procedure Act (APA) when it promulgated the Noncompete Rule. Specifically, the court found that the FTC acted beyond its lawful statutory authority and that the rule was arbitrary and capricious. In particular, the court found that the FTC Act does not give the commission the authority to create "substantive rules regarding unfair methods of competition." It also faulted the rule for being overbroad and imposing a one-size-fits-all approach – not differentiating between helpful and harmful noncompete agreements.
While the Ryan LLC decision has for now removed a potential cloud hovering over the use and enforcement of noncompete agreements, it is quite possible that the FTC will appeal the decision. In addition, many states ban or limit noncompete agreements, and the National Labor Relations Board General Counsel, Jennifer Abruzzo, has signaled her intent to challenge noncompetes involving employees as violating the National Labor Relations Act.
If you have any questions about how this decision affects you and your business or about noncompete agreements in general, please do not hesitate to contact a member of our firm’s Labor and Employment Practice Group or your Warner attorney.