Our previous post discussed the recent FTC rule banning non-compete agreements and the subsequent legal challenge it faced in Texas. Ryan LLC, a tax services firm in Dallas, sued to block the rule shortly after the Federal Trade Commission narrowly voted in April to ban non-compete agreements for most U.S. workers. Initially, the U.S. Chamber of Commerce filed its own lawsuit against the FTC in a separate Texas federal court but has since joined Ryan’s case. On July 3, 2024, Judge Ada Brown of the U.S. District Court for the Northern District of Texas granted a preliminary injunction, delaying the rule’s implementation but with a somewhat unexpected caveat: the injunction only bars the Rule from going into effect against the Plaintiffs in that case, not employees nationwide.
Ryan argued that the FTC exceeded its legal authority by banning noncompete agreements. The court concurred, stating that the FTC lacks the power to enact such a broad rule. When a judge issues a preliminary injunction that means that she is finding that the plaintiff’s argument will likely succeed on its merits. From a practical perspective, that means that her final decision which she said will be issued no later than August 30, will likely also find that the FTC exceeded its authority. The decision is a bad sign for those of us in favor of getting rid of non-competes.
The Rule is set to go into effect on September 4, 2024. With the final decision due by August 30 this means that there will be a lot of confusion amongst employees and businesses in the days that follow. We will continue to provide updates here but, in the interim, just know that the FTC rule is not in effect. Thus, it is imperative for employees to consult with attorneys about the enforceability of their non-compete agreements.
