Employers across the U.S. can breathe a sigh of relief. A federal court in Dallas, Texas stopped the Federal Trade Commission’s Final Rule banning almost all non-competition agreements. The case is Ryan LLC v. Chamber of the United States of America et al. (N.D. Tex., Case No. 3:24-cv-00986-E; Documents 211 [opinion] and 212 [final judgment]). Although an appeal by the FTC is likely, employers can stop worrying about the September 4th effective date of the Final Rule, which is now dead.

In a 27-page opinion, on August 20, 2024, the Northern District of Texas court found that the FTC exceeded its statutory authority in implementing the Final Rule: “In sum, the Court concludes the text and the structure of the FTC Act reveal the FTC lacks substantive rulemaking authority with respect to unfair methods of competition… the Court concludes the Commission has exceeded its statutory authority in promulgating the Non-Compete Rule.” (Opinion at 22).

The court also found the Final Rule was arbitrary and capricious because it is “unreasonably overbroad without a reasonable explanation.” (Id. at 23-24). The court found the FTC’s record did not support the Final Rule. The court described the FTC’s record in support of the Final Rule as a handful of studies and different states’ approaches to non-compete enforcement based on specific situations disconnected from the Final Rule’s “categorical ban.” (Id. at 24). The court also found the FTC failed to analyze less disruptive alternatives and its justification for not doing so did not adequately explain the Final Rule. (Id. at 25). The court held the FTC’s Final Rule was “an unlawful agency action.” Id. at 26. Therefore, it granted the plaintiff’s motion for summary judgment and denied the FTC’s motion for summary judgment. Id.

Employers can use some of the time freed up from FTC compliance for restrictive covenant maintenance. Non-competition agreements, confidentiality agreements, and non-solicitation agreements are not “one and done” forms that apply to all employees and never need to be updated. The agreements with the best chance of court enforcement are those which experienced legal counsel has recently reviewed and updated. Also, employers should watch for further developments on the FTC non-compete litigation because an appeal of the decision of the Northern District of Texas is expected. See our prior blog posts on the FTC Final Rule litigation:

Clients or businesses with any questions about the FTC’s new Final Rule banning most non-competes should contact Attorney Pamela Ploor at (414) 982.2854 or pploor@staffordlaw.com, or contact their Stafford Rosenbaum lawyers.

Stafford Rosenbaum LLP is a full-service law firm with two convenient office locations in Madison and Milwaukee, Wisconsin. 145 years of dedication to businesses, governments, nonprofits, and individuals has proven that effective client communication continues to be the heart of our practice.

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