9 July 2024 Andrew Gaines  -  Janet M. Lee  -  Maddy Hayes Employment and Incentives

U.S. District Court Preliminarily Enjoins the FTC’s Non-Compete Rule

On July 3, 2024, in Ryan, et al. v. Federal Trade Commission, No. 24-cv-00986 (N.D. Tex. July 3, 2024), the U.S. District Court for the Northern District of Texas issued a limited stay and preliminary injunction of the U.S. Federal Trade Commission’s (“FTC”) rule banning most non-compete agreements between workers and employers (the “Non-Compete Rule”). In her decision, Judge Ada Brown preliminarily enjoined the FTC from enforcing the Non-Compete Rule and stayed the Final Rule’s effective date, but only as to the specific plaintiffs in the action.

In issuing the order, the court determined that the plaintiffs challenging the FTC’s Non-Compete Rule were likely to succeed on the merits of their claims that (1) the FTC lacks statutory authority to enact the Non-Compete Rule and (2) the Non-Compete Rule is arbitrary and capricious. While the relief was limited in scope to the parties in the case and not a nation-wide preliminary injunction, the order strongly suggests that the court is positioned to strike down the rule. Judge Brown has indicated that she expects to issue a final ruling on the merits on or before August 30, 2024, prior to the Non-Compete Rule’s currently scheduled effective date of September 4, 2024.

Key Takeaways and Considerations
  • As long as the preliminary injunction and stay are in place, the FTC cannot enforce the Non-Compete Rule against the plaintiffs in the Ryan case. Unless a nation-wide injunction is issued, the Non-Compete Rule will go into effect on September 4, 2024, as to all other employers.
  • Judge Brown has stated that the court will enter a final ruling on the merits by August 30, 2024, before the Non-Compete Rule’s currently scheduled effective date. The reasoning in Judge Brown’s order suggests that the court is highly likely to invalidate or enjoin the Non-Compete Rule.
  • There is a separate challenge pending in U.S. District Court for the Eastern District of Pennsylvania (ATS Tree Services) where a hearing is scheduled for July 10, 2024, on the motion for a preliminary injunction, and the judge presiding over that case has indicated that a decision on the plaintiff’s motion will be issued by July 23, 2024.
  • Judge Brown’s order, against the backdrop of the recent U.S. Supreme Court decision in Loper Bright Enterprises (issued June 28, 2024) overturning the longstanding doctrine of agency deference established by Chevron, underscores the uncertainty of the viability of the Non-Compete Rule and the likelihood that the Non-Compete Rule will be unable to withstand judicial scrutiny.

We are monitoring developments and will provide updates as they become available. Please reach out to our U.S. Executive Compensation and Employee Benefits team if you have any questions or would like to discuss.