By Mark Fischer and Ron Lefebvre

August 26, 2024

As we previously wrote, the Federal Trade Commission (“FTC”) adopted a final rule on April 23, 2024 (the “Rule”), providing that “it is an unfair method of competition” for employers to enter into non-compete clauses with their workers and effectively banning such clauses as illegal under the Federal Trade Commission Act.

This Rule was due to become effective on September 4, 2024. It has now been struck down, in its entirety, by the U.S District Court for the Northern District of Texas in Ryan LLC vs. FTC.

Since our last update on July 10, 2024 (https://www.ymfzlaw.com/update-on-ftc-non-compete-rule/), the U.S. District Court for the Eastern District of Pennsylvania, in ATS Tree Services, LLC v. FTC, upheld the Rule and denied the plaintiff’s request for a preliminary injunction. The ruling was in stark contrast to the July decision by the Texas federal court in Ryan. Importantly, both of these federal courts only ruled on requests for preliminary relief and did not directly affect the enforceability of the Rule on a nationwide basis.

Now, that has changed. On August 20, 2024, the Texas federal court made its final decision in Ryan on the enforceability of the Rule. It held that the “FTC exceeded its statutory authority in implementing the Rule,” and that the “one-size-fits-all” approach of Rule is unconstitutional and unenforceable. Unlike the previous, preliminary rulings discussed above, the court’s decision to strike the Rule has a “nationwide effect.” Accordingly, as of today’s date, the Rule will not go into effect on September 4, 2024.

This, of course, is not the end of the legal battle over the Rule. The FTC is all-but-certain to appeal the Texas district court ruling to the United States Court of Appeals for the Fifth Circuit (and ultimately the U.S. Supreme Court) and may also seek a stay of the decision pending the resolution of such appeals. For the moment, however, businesses are not required to take any action based on the Rule.

We will continue to monitor litigation regarding the Rule and provide updates as they become available.

YMFZ is a closely-held Pittsburgh law firm which for more than 30 years has been offering good counsel, personal attention, and cost-effective representation to its clients for all manner of business legal needs, including commercial litigation, business set-up and finance, commercial and technology contracting (including bank representation), employment law, real estate (including oil and gas), and intellectual property. YMFZ clients include both large national and multi-national corporations and regional and local businesses. For more information on our firm, please visit www.ymfzlaw.com.