The Federal Trade Commission’s (“FTC”) ban on most noncompete agreements nationwide has faced several legal challenges since initially presented. The results of those challenges have varied and have been limited in scope, until now.
On August 20, 2024, just two weeks before the ban would go into effect, one federal judge in Texas granted a Motion for Summary Judgment in Ryan LLC v. FTC putting a full stop on the FTC’s sweeping ban.
What Was the Reasoning?
- Lack of Authority: The court determined the FTC can make “housekeeping” rules and deal with issues of unfair methods of competition on a case-by-case basis, however, substantive rule making with regard to unfair methods of competition is beyond their scope of authority.
- Arbitrary and Capricious: Historically, each state has regulated non-competes within their own jurisdictions and the federal government has not broadly addressed their enforceability. The court found “no state has enacted a non-compete rule as broad as the FTC’s rule” and the FTC provided insufficient “evidence as to why they chose to impose such a sweeping prohibition. . . instead of targeting specific, harmful non-competes. . .”
What Happens Now?
The FTC could appeal the decision, or they could go back to the drawing board and revise the ban based on the court’s concerns. Congress could also decide to get involved and come up with its own rules regarding non-competes and their enforceability.
While the current status quo remains, employers and workers should review their existing and proposed agreements to ensure they comply with local state laws. Many states impose limitations on non-compete clauses, and other states already ban them almost entirely, including California, North Dakota, Oklahoma, and Minnesota.
This situation will continue to evolve and it is important to keep a close watch on it.
Reminder
Employment non-competes have not been enforceable in Oklahoma for some time (except in very limited circumstances).
The FTC ban never applied to non-competes related to employees in senior executive positions, sale of a business, and in some instances franchisor/franchisee situations.
Whether you are a worker or an employer, we recommend ensuring you understand your rights and obligations. You can contact us here to schedule a consultation.
***The information provided in this article is not legal advice and should not be construed as such. It is for educational purposes only and you should talk with a lawyer before taking any actions based on the information in this article.
