Important Update on FTC’s Non-Compete Rule
On August 20, 2024, the U.S. District Court for the Northern District of Texas in Ryan, LLC v. FTC blocked the Federal Trade Commission’s (FTC) ban on non-compete agreements. The court found the FTC had exceeded its statutory authority under the FTC Act, which limits the agency to procedural, not substantive rulemaking. The court ruled the FTC could not issue a blanket ban on non-competes as part of its mandate to address unfair methods of competition(Home | Holland & Knight) (The National Law Review).
Moreover, the court deemed the rule "arbitrary and capricious", criticizing it for being overly broad and unsupported by strong evidence. The decision highlighted that the FTC failed to adequately consider less restrictive alternatives and ignored the positive benefits of non-compete agreements(Global Law Firm | Paul Hastings LLP).
What’s Next for Employers?
Employers can pause preparations for compliance with the FTC’s rule.
The FTC may appeal this decision, which could potentially go to the U.S. Court of Appeals for the Fifth Circuit, and possibly, the Supreme Court(The National Law Review)(Harvard Law School Corporate Governance).
Stay tuned for updates on this evolving legal topic. For now, the nationwide ban remains blocked, but non-compete agreements still fall under state and other federal laws. Reach out if you need guidance on how this impacts your business.
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