FTC Non-Compete Ban Preliminarily Enjoined by Texas District Court

On July 3, 2024, the U.S. District Court for the Northern District of Texas enjoined the Federal Trade Commission (FTC) from enforcing and implementing its rule banning non-competes and stayed the September 4 effective date of the rule against Ryan LLC, a tax services firm that sued the FTC over the rule. The court provided the same relief for several other parties that intervened in the case.

We discussed the FTC’s rule, which would ban non-competes for almost all employees and independent contractors, in a previous LaborSpeak video. In that video we recognized, as the court did in its opinion, that the FTC likely does not have the legal authority to issue this type of rule. Despite recognizing this issue, the court did not grant nationwide injunctive relief but instead limited its injunction to the parties in the case. However, the court noted that it plans to issue a final decision on or before August 30, several days before the rule is set to take effect. Based on the court’s initial opinion, we expect that it is still unlikely that the court will allow the rule to go into effect.

There is another ongoing case challenging the FTC’s rule that was brought by a tree care business, ATS Tree Services, in the Eastern District of Pennsylvania. A hearing in that case will take place on July 10, and the court said it would issue a decision by July 23.

We will continue to monitor these cases, but for now, our recommendation is still for companies to hold off on making changes to their employment agreements, non-compete provisions or other restrictive covenants. However, as we have previously noted, employers should continue to ensure their non-compete agreements are enforceable under applicable state law.