On July 3, 2024, United States District Judge, Ada Brown, granted a preliminary injunction against the Federal Trade Commission (the “FTC”)’s ban on non-compete agreements in the case of Ryan, LLC v. FTC.
KingSpry’s Employment Law Chair, Avery E. Smith, Esq., reviews the Court’s decision and details its potential impact on the trajectory of the FTC’s nationwide ban on non-competes.
Readers must note that this decision impacts only the Plaintiff and Plaintiff-Intervenors in the case of Ryan, LLC v. FTC. The FTC’s Non-Compete Rule is still set to take effect on September 4, 2024.
The Case
The Plaintiff, Ryan, LLC, and Plaintiff-Intervenors, the Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce, challenged the FTC’s Non-Compete Rule (the “Rule”).
The Plaintiff contends that the FTC Act does not grant the FTC the statutory authority to issue rules defining unfair methods of competition. The Plaintiff further claims that such authority would be an “unconstitutional delegation of legislative authority.”
The Plaintiff-Intervenors also argue that the Rule exceeds the FTC’s statutory authority, and that the Rule is “the product of flawed decision-making, as it violates the [Administrative Procedure Act].”
The Decision
Judge Brown, of the United States District Court for the Northern District of Texas, granted a preliminary injunction against the Rule. This decision stayed the effective date of the Rule and prevents the FTC from implementing the Rule only for the Plaintiff and intervenors in this case.
What Does the Future Hold?
Judge Brown wrote, “the Court intends to rule on the ultimate merits of this action on or before August 30, 2024.” While this decision impacts on the Plaintiff and Plaintiff-Intervenors for now, a decision in the next few weeks may change the fate of the Rule. The question remains whether the Court will expand the injunction nationwide before September 4, 2024, the Rule’s effective date.
Employers are encouraged to keep abreast of the ongoing challenges to the Rule while proactively preparing for it to take effect. Employers are encouraged to consider (1) the use of non-disclosure agreements, and (2) the use of technology, such as monitoring employee actions on employer-issued technology to protect trade and business secrets.
Employers may also benefit from structuring compensation in a manner that incentivizes employee retention, such as bonuses or deferred compensation plans.
