In Ryan LLC et al. v. Federal Trade Commission, the U.S. District Court for the Northern District of Texas yesterday issued a much-awaited decision on the status of the Federal Trade Commission (FTC) final rule banning most non-compete clauses, setting aside the FTC ban nationwide.
The FTC non-compete ban was scheduled to go into effect starting on September 4, 2024. By that date, covered businesses large and small were required to send out notices to affected individuals with non-compete clauses stating that those clauses would not be enforced on a go-forward basis. This Texas federal court ruling blocks the FTC rule and the notice requirement from going into effect on a nationwide basis.
Specifically, the Texas court ruled that the non-compete ban was beyond the FTC’s rulemaking authority and was arbitrary and capricious. Therefore, the court was compelled to “hold unlawful” and “set aside” the FTC rule, barring it from going into effect and being enforced nationwide.
However, a Philadelphia federal court recently reached the opposite conclusion last month. In ATS Tree Services, LLC v. Federal Trade Commission, a federal judge from the U.S. District Court for the Eastern District of Pennsylvania denied the tree service company a preliminary injunction to halt the FTC ban, and indicated the FTC had the statutory authority to issue the rule.
These conflicting decisions will likely tee up the FTC final rule for appeal to the Circuit Courts and the U.S. Supreme Court. The FTC has already indicated it is considering an appeal, while noting in a statement that the decision does not prevent the FTC from addressing non-competes through case-by-case enforcement actions.
We will continue to monitor the situation and provide updates as developments occur. If you have any questions regarding non-compete clauses or the FTC’s final rule, please reach out to Michael Crocenzi, Jill Welch, Bill Boak or any member of the Barley Snyder Employment Practice Group.
