On August 20, 2024, a Texas federal court permanently blocked the Federal Trade Commission (“FTC”) from enforcing its Final Rule banning non-compete agreements in the United States. The federal court found that the “categorical ban” by the FTC violated the Administrative Procedures Act and was “arbitrary and capricious.” This court had issued a temporary and limited injunction against the FTC’s Final Rule in July, so the court’s ruling was highly anticipated.
The FTC had issued its Final Rule banning the future use of non-compete agreements on workers throughout the United States on April 23, 2024. The Final Rule was scheduled to become effective on September 4, 2024.
A lawsuit was filed by a tax services company and joined by several business groups in federal court in Texas in the case of Ryan, LLC, et al. v. Federal Trade Commission. The plaintiffs argued that the FTC, a federal agency, lacked the constitutional authority to enact such a broad law under its limited rulemaking authority.
The Texas federal court agreed with the plaintiffs and concluded “the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action.” The court criticized the FTC for relying on inapplicable economic studies to support its reasoning, not considering a more narrow rule, not considering the benefits of non-compete agreements, and using a “one size fits all” approach. The order is crystal clear that the Final Rule is “unlawful” and “set aside” on a nationwide basis. However, the FTC indicated that it is considering appealing the decision and recently won a victory by defeating an injunction in similar litigation challenging the Final Rule in Pennsylvania. Gunster’s Labor and Employment Practice Group will provide continued coverage of this evolving issue.
Although enforcement of this Final Rule has been blocked, pending a potential appeal, employers should still be aware that other federal agencies like the National Labor Relations Board (NLRB) continue to attack non-competes to try to prevent their enforcement. Employers should work with legal counsel to consider adjustments to their restrictive covenant forms to ensure they remain in compliance with federal guidance and preexisting state laws. Florida has a robust statutory framework with several requirements that must be met for non-compete and non-solicitation agreements to be enforceable. Therefore, businesses should be careful to avoid a “one size fits all” approach.
The Final Rule was published at 16 C.F.R. 910.1-.6, and the case referenced above is Ryan LLC v. Federal Trade Commission, Case No. 3:24-CV-00986-E in the U.S. District Court for the Northern District of Texas, Dallas Division.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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