A Texas federal judge recently struck down the Federal Trade Commission’s (FTC) nationwide ban on non-compete agreements, a rule that was set to take effect on September 4, 2024. The case, Ryan LLC v. FTC, was brought before the Northern District of Texas, where Judge Ada Brown ruled that the FTC exceeded its authority under the FTC Act by trying to implement such a sweeping ban. The court found that the FTC did not have the statutory authority to issue binding rules on unfair methods of competition, and even if it did, the rule was deemed “arbitrary and capricious” for its broad, one-size-fits-all approach.
At this point, the Court’s decision maintains the status quo of state laws regarding non-competes. It is anticipated that the FTC is likely to appeal the decision, meaning the legal battle may continue into 2025.
Following the district court’s decision, the FTC initially appealed Judge Brown’s order to the Fifth Circuit. However, after a change in administration and multiple stays to reconsider its litigation position, the FTC formally abandoned its appeal to revive the nationwide ban. As a result, enforceability of non-compete agreements is still governed primarily by state law and traditional case-by-case federal scrutiny under antitrust principles. Although the nationwide regulatory effort was discontinued, the FTC highlighted that non-competes remain a priority and has pivoted to targeted public inquiry into anti-competitive non-compete practices, meaning that employers should still expect ongoing scrutiny in this area even without a blanket federal ban.