On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final Rule—effective September 4, 2024—banning non-compete agreements nationwide and requiring employers to provide notice of the Rule to current and former employees.
Four lawsuits were quickly filed challenging the Rule. Until now, those lawsuits had given mixed and confusing signals about whether employers would need to comply with the Rule by September 4.
That changed yesterday—August 20–when a Texas federal court in Ryan, LLC v. FTC found that the Rule was unlawful and said the FTC can’t enforce the Rule anywhere in the nation.
Of course, this ruling is likely to be appealed, but in the meantime the court’s ruling gives employers some much needed certainty. Here’s what you need to know about this update to the nationwide non-compete ban:
What was the final result in Ryan, LLC v. Federal Trade Commission?
Originally, the judge in the Ryan case committed to issuing a final ruling on the merits of the case by August 30 so that employers would have an answer before the Rule’s effective date.
She beat her own deadline by 10 days when she decided on August 20 that “the FTC exceeded its statutory authority in implementing the Rule, and the Rule is arbitrary and capricious.” As a result, the judge found that the Rule “shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.”
This ruling applies nationwide, so no employer needs to comply with the Rule. This could change if the ruling is reversed on appeal, but the result of any appeal could be far in the future.
Ultimately, this could be a case that reaches the Supreme Court, especially since we’ve seen lower courts come to different conclusions on the legality of the Rule.
What should employers do now about non-competes?
With this non-compete ban update, employers can rest easy knowing that the existing non-compete framework is no longer under immediate threat at the federal level.
But states continue to regulate non-competes aggressively, so employers need to follow the non-compete law of every state where they have employees. You can view SixFifty’s map of state-by-state non-compete laws as a quick reference for the current landscape of laws.
So the non-compete ban is dead for now, but employers should stay alert for any change in this non-compete spectacle since an appellate court could easily bring it back.
We are monitoring developments surrounding this rule and will update our tools and inform our customers accordingly.
