Texas Federal Court sets aside FTC’s non-compete rule, preventing it from taking effect on September 4, 2020
On the 20th of August, 2024, in Ryan LLC. v. Federal Trade Commission No. 3:24-cv-00986-E (N.D. Tex. The FTC may immediately appeal the court’s decision to the Fifth Circuit.
Repeating the same reasoning it reached in granting a preliminary injunction on July 3, 2024, the court held that: (1) the FTC exceeded its statutory authority by issuing the Rule; and (2) the Rule was arbitrary and capricious under the Administrative Procedures Act (“APA”). The FTC may immediately appeal the court’s decision to the Fifth Circuit.
Repeating the same reasoning it reached in granting a preliminary injunction on July 3, 2024, the court held that: (1) the FTC exceeded its statutory authority in issuing the Rule; and (2) the Rule was arbitrary and capricious under the Administrative Procedures Act (“APA”). The court determined that Section 6(g), which the FTC relied upon to issue the Rule does not give it authority to issue substantive regulations, but instead is a “housekeeping law” which only authorizes procedures or practices. The court found the Rule to be arbitrary and capricious, because it was based on a “one size fits all” approach that was not adequately supported by the FTC’s studies. These studies only looked at the economic effects of state-specific laws regarding non-competes, and did not address the categorical prohibition established by the Rule. The court found that the FTC did not consider the “positive benefits of non-competes”, disregarded the “substantial evidence” that supported them, and failed to adequately address less disruptive alternatives to Rule. The court rejected the FTC’s argument that relief be limited to named plaintiffs. It found that the APA did not contemplate party specific relief. Thus, the court ordered that the Rule shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.
The FTC is likely to appeal the court’s decision to the Fifth Circuit. We will keep you informed of any developments.
