On August 20, 2024, the United States District Court for the Northern District of Texas issued a Memorandum Opinion and Order setting aside, on a nationwide basis, the Federal Trade Commission’s (“FTC”) Non-Compete Rule (Ryan LLC v. Federal Trade Commission (3:24-cv-986)). The Court decided that the FTC’s Non-Compete Rule was unlawful and exceeded the FTC’s statutory authority. As a result, the FTC’s Non-Compete Rule will not go into effect or be enforceable unless and until the FTC successfully appeals this decision.
As a result, non-compete and similar agreements that would have been subject to the Rule will continue to be enforceable if they otherwise comply with applicable state law. Several states have limited non-compete clauses for employees to various degrees. For instance, several states, like California, Minnesota, North Dakota and Oklahoma, have full or near total non-compete bans while other states have limited non-compete bans to certain industries (such as New York) or set income restrictions (like Maine, Virginia, and Washington). Even if a state does not have a statutory restriction on non-competes, the enforceability of non-compete agreements remains subject to judicial review. Ultimately, courts are left to decide the reasonableness in applying non-compete agreements in their jurisdiction. Also, the Texas decision does not prevent the FTC from addressing noncompete agreements through “case-by-case” enforcement actions.
The FTC may appeal the Ryan LLC decision to the 5th Circuit Court of Appeals. However, it seems unlikely that the appellate court will allow the Non-Compete Rule to go into effect while any appeal is pending. We will post updates if an appeal is filed.
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Employers should clarify if their non-compete agreements comply with applicable state law. For further information or guidance on revising your policies, procedures, and agreements, please contact David Paseltiner, Robert Londin or Rose Egan.