FTC’s Non-Compete Ban Is Unenforceable? Blocked? Gone?

Yesterday, a Texas federal judge issued a nationwide injunction preventing the Federal Trade Commission (FTC) from enforcing its notorious rule banning non-competes. The rule, scheduled to go into effect on Sept. 4, 2024, not only prohibits almost all non-competes, but also requires employers to notify all current and former workers subject to a non-compete that their non-compete is no longer enforceable.

In Ryan LLC v. FTC, tax company Ryan LLC, along with intervenor the U.S. Chamber of Commerce, argued the FTC’s ban surpassed its authority. In early July, U.S. District Judge Ada E. Brown agreed, but limited the decision to the plaintiffs in that case until rendering a final decision.

Yesterday, that final decision was released. In concluding the rule exceeded the FTC’s authority and was arbitrary and capricious, Judge Brown held the rule should be set aside and shall not be enforced nationwide. The U.S. Chamber of Commerce called the ruling a significant win in its “fight against government micromanagement of business decisions.”

However, this decision comes on the heels of a decision in Pennsylvania federal court in late July. There, U.S. District Judge Kelley Brisbon Hodge refused to grant a preliminary injunction against the non-compete ban. In support, Judge Hodge said, “The FTC's final rule serves to …. prevent unfair methods of competition in the form of non-compete agreements, both before they occur as well as after, to cease the past and ongoing harm they inflict as illustrated in the FTC's final rule."

So are non-competes banned, or aren’t they? This question has plagued employers' minds for months and, unfortunately, we still do not have a clear answer. What we have now is a circuit split between courts in the Third and Fifth Circuits. The decisions almost certainly will be appealed, and we would not be surprised if the decision did not reach the U.S. Supreme Court. Although, any decision on an appeal would not come before the Sept. 4 deadline.

Given the uncertainty, employers should be cautiously optimistic about this holding. FTC spokesperson Victoria Graham confirmed the FTC would still enforce non-competes, despite the holding, through case-by-case enforcement actions. Employers would be wise to audit their restrictive covenants and revise them as necessary for enforcement under state law.