Federal Court Blocks FTC’s Non-Compete Ban

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On August 20, 2024, the U.S. District Court for the Northern District of Texas issued an order officially setting aside the FTC’s Final Rule Banning Non-Competes (the “Ban”). The Ban had previously been blocked on a tempory basis and only as to the parties who filed that lawsuit in Texas. The FTC’s Ban is now permanently blocked in Kentucky, Indiana and across the country, and employers can still enforce their valid and enforceable non-compete agreements.

Ryan v. Federal Trade Commission was one of three cases we’ve been monitoring as the efforts to fight the implementation of the Ban transpired. Ryan, LLC, a tax services firm, filed suit shortly after the FTC issued its final rule on April 23, 2024, alleging that: (1) the FTC exceeded its statutory authority; and (2) the Ban was arbitrary and capricious. On July 3, 2024, the Court concluded that Ryan was likely to succeed at trial and enjoined the FTC from implementing the Ban as to Ryan. After the final hearing on the merits, the Court blocked the Ban, prohibiting its enforcement nationwide and summarizing its findings as follows: “In sum, the Court concludes that 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The Ban was previously set to take effect on September 3, 2024 which would have superseded state law allowing for non-compete agreements, as well as:

  • Banned existing non-compete agreements, except for those agreements with senior executives in “policy-making” positions earning more than $151,164.00 per year;
  • Prohibited employers from entering into future non-compete agreements with any employees;
  • Required employers to provide notice to employees informing them that their existing non-competes were now unenforceable; and
  • Imposed civil penalties for non-compliant employers.

This ruling serves as a strong rebuke to administrative agency overreach.  The FTC has indicated its intent to appeal the ruling to the U.S Court of Appeals for the Fifth Circuit. However, given recent developments in administrative law jurisprudence such as the U.S. Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo, which limited the authority of federal agencies, such an appeal is unlikely to be successful.

Employers can finally rest easy as the status quo for non-competes will remain the law of the land. In both Kentucky and Indiana, non-competes remain enforceable, so long as they are reasonable in scope, supported by sufficient consideration, and are intended to protect a legitimate business interest of an employer (e.g., confidential business information and customer relationships). That said, it’s critical that employers ensure their non-compete agreements and non-solicitation clauses are drafted properly and comply with state laws. If you have any questions about the enforceability of your employees’ current non-compete agreements, please reach out to Commonwealth Counsel Group PLLC.