On July 3, 2024, a federal court in Texas preliminarily enjoined the Federal Trade Commission’s Final Non-Compete Clause Rule (“Final Rule”) from going into effect on September 4, 2024. Ryan, et al. v. Federal Trade Commission, No. 24-cv-00986, 2024 WL 3297524 (N.D. Tex. July 3, 2024). The Final Rule, issued on April 23, 2024, would ban post-employment non-compete clauses in all agreements between employers and their workers with limited exceptions.
Although this preliminary injunction only applies to plaintiffs in the Ryan case, the ruling is a strong indication that the Final Rule is unlikely to pass final judicial review, preventing it from going into effect nationwide. The court in Ryan found that the Federal Trade Commission “FTC” does not have the authority to “promulgate substantive rules” with respect to unfair methods of competition and that the FTC exceeded its authority in enacting the Final Rule. The court also found that the FTC’s promulgation of the Final Rule was “arbitrary and capricious,” explaining that it “imposes a one-size-fits-all approach with no end date” and a “categorical ban” on non-competes. Finally, the court noted that the FTC failed to weigh alternatives to the Final Rule and did not consider potential “pro-competitive justifications” for non-competition covenants. The case will proceed to a full adjudication on the merits, including a decision whether to permanently enjoin enforcement of the Final Rule on or before August 30, 2024.
The Ryan decision was issued just days after the Supreme Court’s decision, Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024), overruling the “Chevron deference” doctrine. The United States Supreme Court’s rejection of the Chevron deference doctrine lends even more support for the position that the FTC overreached its authority in issuing the Final Rule and that the FTC’s own interpretation of the Final Rule will not be heavily weighed.
Similar challenges to the Final Rule are currently pending in the Eastern District of Pennsylvania and in the Middle District of Florida. More challenges to the Final Rule and other agency decisions can be expected in light of Loper. We will continue to closely monitor these cases and the status of the FTC’s Final Rule.
The attorneys in Kane Kessler’s Labor & Employment Group are available to assist companies with a full range of labor and employment issues. Please contact Dana Susman, dsusman@kanekessler.com at 212 519-5136, Naomi Lantsberg, nlantsberg@kanekessler.com at-212 519-5117, or Jonathan Sabin, jsabin@kanekessler.com at 212 519-5113 for additional information.