In the case of Ryan LLC v. Federal Trade Commission, a Texas Federal Judge recently issued the first preliminary injunction against the FTC’s proposed ban on non-compete agreements. This rule, initially set to take effect on September 4, 2024, would prohibit existing non-competes for non-senior executives and ban new non-competes for all employees under Section 5 of the FTC Act, categorizing such clauses as an unfair method of competition.
Key Points:
- Ruling: On August 20, 2024, Judge Ada Brown of the United States District Court for the Northern District of Texas granted summary judgment in favor of the plaintiffs, effectively blocking the FTC’s nationwide ban on non-compete agreements. The court found that the FTC had exceeded its statutory authority and ruled that the proposed ban was arbitrary and capricious under the Administrative Procedure Act.
- Court’s Opinion: The court held that the FTC lacked the statutory authority to issue substantive rules related to unfair methods of competition, particularly noting that Section 6(g) of the FTC Act does not grant the FTC the power to create such rules. The court also criticized the FTC’s reliance on state-specific studies to justify a nationwide ban, arguing that the FTC failed to consider the positive aspects of non-compete agreements or explore less disruptive alternatives.
Implications:
As previously noted in an earlier Advisory, the FTC’s proposed rule would have significant implications for businesses, particularly those offering a mix of exempt Title II telecommunications services and non-exempt VoIP or other communication services. This ruling is significant for employers as it temporarily preserves the enforceability of non-compete agreements. However, it is important to note that the FTC is likely to appeal the decision to the Fifth Circuit, and businesses should stay informed about further developments.
If you have questions or concerns about how this ruling may affect your business or your non-compete agreements, please consult the attorney responsible for your account or, in the alternative, contact Jonathan Marashlian at jsm@commlawgroup.com.
