The District Court Issues Limited Stay On FTC’s Non-Compete Rule

On July 3, 2024, in Ryan LLC, et al v. Federal Trade Commission, the United States District Court for the Northern District of Texas issued an Order enjoining the Federal Trade Commission’s (“FTC”) Rule banning non-competes (hereinafter “Non-Compete Rule”), but only as to the named Plaintiffs.

In its lengthy Opinion, the Court examined the legislative history of the Federal Trade Commission Act and concluded that Congress did not empower the FTC to exercise substantive rulemaking. Therefore, the FTC exceeded the scope of its authority by issuing the Non-Compete Rule.

Additionally, the Court found that the Non-Compete Rule was “arbitrary and capricious” because it would “impose such a sweeping prohibition” on non-competes instead of targeting only “specific, harmful non-competes.” In other words, the Non-Compete Rule, as written, is overly broad.

Finally, the Court contemplated a nationwide injunction but noted that the Plaintiffs did not brief arguments for (or against) a nationwide injunction or stay. As such, the Court concluded that an order putting the Non-Compete Rule on hold, but only as to the Plaintiffs, was appropriate.

The Court intends to issue a final dispositive order no later than August 30, 2024. In the meantime, employers should be prepared to make certain changes to its restrictive covenants agreements by September 4, 2024, the date on which the Non-Compete Rule becomes effective.

Please feel free to contact a member of the Labor & Employment section listed below with additional questions.