Almost immediately after the Federal Trade Commission (FTC) issued its rule essentially banning non-compete agreements nationwide for all workers, the lawsuits started flying. One of the first cases filed was by Ryan, LLC (Ryan) in the Northern District of Texas on April 23. (Ryan LLC v. Federal Trade Commission, Case No. 3:24-cv-00986-E). The Northern District of Texas is very familiar with being tasked to decide if certain government mandates go a bit too far.
Ryan is a global tax services firm with more than 4,000 employees, with its main business located in the Northern District of Texas. Ryan alleged it enters into non-compete agreements with principals who hold ownership and management roles, as well as occasionally with employees with access to particularly sensitive business information. Along with initiating this lawsuit, Ryan filed a motion to stop the implementation and enforcement of the FTC’s rule. Along with Ryan, several business groups, including the U.S. Chamber of Commerce Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce also intervened in order to voice their disagreement with the FTC’s rule and join the cause to stop the rule’s effective date.
On July 3, 2024, Judge Ada Brown issued a preliminary injunction prohibiting the FTC from implementing or enforcing the non-compete ban. But, two very important qualifiers were made regarding this injunction. The first is that the injunction is preliminary; meaning, the fight is not over. A final order on the merits is expected by August 30, 2024. However, Judge Brown’s decision does give some insight of what may come next. The July 3 decision stated the FTC’s rulemaking authority, which it used to issue this rule, is ‘suspect’ and that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition. The opinion goes on to state the FTC’s rule is likely arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation. Judge Brown described the rule banning all non-competes as sweeping, far-reaching, and one-size-fits-all when determining it was arbitrary and capricious–possibly hinting of what is to come with the court’s final order. The court also held that Ryan would likely suffer irreparable harm if the rule went into effect while concluding the FTC’s opposing argument to such injury as ‘scant.’
Here is the kicker: the second qualifier is that this preliminary injunction only applies to Ryan and the U.S. Chamber of Commerce, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce–not to any of their members. This decision does not impact or affect the FTC’s rule for anyone other than these specific parties.
While this injunction may only apply to these parties, it provides a glimpse of what the future may hold. With the FTC’s rule scheduled to go into effect on September 4, 2024, this court’s August 2024 order, and decisions from the other lawsuits, will be closely watched and hotly anticipated!
What Now?
With various lawsuits still swirling, and the final decision coming soon from the Northern District of Texas, it would be wise to stay the course until the dust settles.
If you have not identified all existing non-compete and non-solicitation agreements, now would be a good time to do so. You do not need to make any sweeping changes, or even make any changes yet; but, you should be prepared for whatever comes next.
As with various other pending lawsuits and injunctions, this can feel like whiplash! But, you can always count on Bricker Graydon’s Labor & Employment team. We are ready to assist with any questions or concerns you may have. We will continue to monitor developments, and provide updates on the status of the FTC’s rule.
