As discussed more fully in our prior post, the Federal Trade Commission (“FTC”) issued a final rule prohibiting the use of almost all non-compete clauses (“Rule”). The Rule was intended to take effect on September 4, 2024. In the weeks prior, however, the United States District Court for the Northern District of Texas prevented enforcement of the Rule. Specifically, the court in Ryan LLC v. Federal Trade Commission granted summary judgment in favor of the plaintiffs and precluded the FTC from enforcing the Rule on a national basis.
The Ryan court held that the Rule was “arbitrary and capricious” because “it [was] unreasonably overbroad without a reasonable explanation.” The Court further concluded that the Rule was not supported by evidence and represented a “sweeping prohibition – that prohibit[ed] entering or enforcing virtually all non-competes – instead of targeting specific, harmful non-competes . . . .”
Although enforcement of the Rule is now halted, our firm expects that the FTC will appeal the decision. Additional litigation over the Rule has occurred, and almost certainly will continue to occur, in other venues as well. As such, employers and employees will need to monitor all litigation regarding enforceability of the Rule. At present, employers may still utilize non-competes in accordance with state law, such as ensuring reasonable restrictions on geographic and temporal scopes. However, the enforceability of a particular covenant is a fact-intensive analysis that could vary depending with each employment relationship. When in doubt, always consult with counsel before issuing or signing a non-compete agreement.
Brian Boreman heads the firm’s Employment Law practice and is the co-chair of the Litigation department. Matt Korenoski is a member of the firm’s Litigation and Zoning and Land Use / Municipal Law departments. If you have questions about the Rule or current viability non-compete agreements, please contact Brian (bboreman@utbf.com) or Matt (mkorenoski@utbf.com) to schedule a consultation.
