On August 20, 2024, a federal judge in the Northern District of Texas granted the plaintiffs’ motion for summary judgment in Ryan LLC v. Federal Trade Commission and set aside the Federal Trade Commission’s new rule banning most non-compete agreements. The court’s order enjoins the FTC’s nationwide rule from going into effect on September 4, 2024, or thereafter. The court agreed with Plaintiff’s argument that the FTC exceeded its statutory authority, and the rule was arbitrary and capricious. The court further stated that the FTC ’s justifications for its decision not to consider alternatives to a complete ban were inadequate.
The FTC may appeal the court’s decision to the Fifth Circuit Court of Appeals. However, in the meantime, with the FTC’s rule halted, businesses may now enter into new non-compete agreements as well as enforce those agreements already in place. We expect courts will uphold non-compete covenants in contracts to the extent they are reasonable in scope and necessary to protect the company’s business interests. State-specific restrictions on non-competes (such as Maryland’s ban on non-competes for lower-wage workers) will still apply, and any changes to federal and state laws can affect you and your company’s business interests.
