Key Takeaways
- A federal judge has stayed enforcement of the FTC's noncompete ban after finding the FTC likely did not have authority to issue its Final Rule.
- The ruling is preliminary and stays the enforcement of the Final Rule only as applied to the named plaintiffs.
- A final decision on the merits is expected before August 30, 2024.
What Happened?
On July 3, 2024, Judge Ada Brown in the Northern District of Texas
issued her highly anticipated decision in Ryan LLC v. FTC
addressing plaintiff Ryan LLC's motion for a preliminary
injunction seeking to stay enforcement of the Federal Trade
Commission ("FTC")'s Final Rule largely banning employee
noncompetes. In her 32-page opinion, Judge Brown found that the FTC
did not have authority to issue its noncompete ban because the
Final Rule was "unreasonably overbroad without a reasonable
explanation." Thus, as widely hypothesized by the legal
community, the implementation of the Final Rule has been stayed by
a federal court.
The scope of the stay, however, is not what was widely expected
— a nationwide injunction — and is instead extremely
limited. The opinion limits the injunction to only the
named plaintiffs. Notably this does not even include
members of the U.S Chamber of Commerce or the other organizations
that intervened in the case as plaintiffs. The court indicated that
it would issue a merits decision by August 30, 2024. It remains to
be seen whether the court will take that final opportunity to
extend the stay nationwide.
What Does it Mean for Employers?
This decision, while helpful in that it confirms what most
employers already believed — that the Final Rule is likely
invalid — does not provide employers any reprieve from
application of the Final Rule as of its September 4,
2024 effective date. However, there is still some hope for
employers that wish to continue to utilize employee noncompetes. On
July 10, 2024, the U.S. District Court for the Eastern District of
Pennsylvania is set to hear a motion in another case (ATS Tree
Services LLC v. FTC) seeking to stay the FTC's Final Rule;
that motion similarly seeks a nationwide injunction stopping the
Final Rule from taking effect. Moreover, it is expected that there
will be a flood of lawsuits seeking to enjoin the Final Rule in the
wake of the decision in Ryan LLC, as employers across the
country will seek to enjoin the rule as applied to them as well.
Any federal district court can issue a nationwide injunction, and
additional cases challenging the rule make it more likely one judge
will decide a nationwide injunction is appropriate.
However, as things currently stand, the FTC's September 4, 2024
effective date remains in effect, and employers should begin
preparing the required notices informing employees that their
noncompetes are no longer in force. Employers should likely hold
off on sending those notices until closer to the September 4, 2024
deadline, as there are still further opportunities for the
FTC's noncompete ban to be stayed nationwide, whether it be in
Ryan LLC's final disposition on August 30, 2024, in
ATS Tree Services LLC, or some other yet-to-be-filed
case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
