On August 20, 2024, employers around the country breathed a great sigh of relief, as the United States District Court for the Northern District of Texas, in Ryan LLC et al. v. Federal Trade Commission, barred the Federal Trade Commission (“FTC”) from enforcing its broad non-compete ban. The FTC’s rule, which was set to go into effect on September 4, 2024, would have banned non-compete agreements in most employment contexts for new and existing non-compete agreements nationwide.
Background
In case you missed it, on April 23, 2024, the FTC issued a final rule to ban non-compete agreements nationwide. In a press release following the announcement, FTC Chair Lina M. Khan endorsed the final rule, stating, “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.” Almost immediately following the final rule, several lawsuits were filed in Federal Courts challenging the FTC’s authority to ban non-compete agreements.
Ryan LLC v. Federal Trade Commission
One legal challenge has been leading the charge and successfully halted the non-compete ban. In Ryan LLC v. FTC, a tax software and services company challenged the FTC’s authority to issue the Final Rule.
On July 3, 2024, the district court made a preliminary ruling barring the FTC from enforcing the Final Rule but limited its ruling to the named Plaintiff’s.
On August 20, 2024, the Court ruled on the merits of the challenge, blocking the ban. Specifically, after reviewing the text, structure, and history of the FTC Act, the Court concluded the FTC lacks the authority to create substantive rules by way of the FTC Act and that the Rule is arbitrary and capricious.
While the FTC argued that the ruling should be limited to the named Plaintiffs, the Court held that the Administrative Procedures Act (“APA”) does not contemplate party-specific relief, and that setting aside agency action under the Act has nationwide effect, is not party-restricted, and affects persons in all judicial districts equally.
What’s Next?
The August 20th ruling was a significant victory for employers, but the future of non-compete agreements is far from clear. For now, employers are relieved from complying with the FTC’s Final Rule banning non-competes, or its requirement to provide notice to current and former employees with active non-competes that those agreements are unenforceable by September 4th.
Currently, Minnesota law prohibits the enforcement of non-compete agreements entered into on or after July 1, 2023 in most employment contexts. However, this does not apply to confidentiality agreements, non-solicitation agreements, or non-compete agreements entered into before that date. Unless and until the FTC appeals the ruling of the Fifth Circuit, employees are still subject to any non-compete entered into before July 1, 2023.
Our Swenson Lervick employment law attorneys continue to monitor the future of non-compete agreements as litigation, laws, and regulations develop. In the meantime, employers should keep in mind that employment agreements tailored to protect legitimate business interests are more likely to be enforceable under the current framework of state and federal law. For additional questions about employment agreements, let us Be Your Guide.
*Disclaimer: This memo is for general informational purposes only. It is not legal advice and should not be relied upon as such. For legal advice about your specific situation, please contact us.
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