The Federal Trade Commission’s non-compete clause ban has been overturned: What this means for you
On the 20th of August, 2024, United States District Judge Ada E. Brown of Northern District of Texas’ Dallas Division issued a ruling on the case of Ryan LLC V. FTC. Judge Brown stated in the ruling that “The Court concludes the FTC lacks the statutory authority to issue the Non-Compete Rule and that the Rule’s is arbitrary and arbitrarily.” The FTC’s decision to promulgate the Rule is therefore an illegal agency action. Ryan LLC v. FTC Civil Action No. 3:24-CV-00986-E, 2024 U.S. Dist. LEXIS 148488, N.D. Tex. Aug. 20, 2024). This article will explain the details of this decision, and what it means to business owners. The FTC banned employers from using non-compete clauses
The ban states that it is unfair competition and therefore a violation to Section 5 for employers to enter into non-compete agreements with workers after the effective date of the final rule. To comply with this ban, employers would have been required to notify their workers who had or were under a noncompete clause that these clauses were no longer binding. The ban will not be implemented as planned by FTC following the ruling of the United States District Court of the Northern District of Texas on August 20, 2024. See FTC Noncompete Clause Ban: what is it and what does it mean?
Ryan LLC filed suit against the FTC’s ban[of the FTC Act]
In Ryan LLC. v. FTC., Ryan LLC, an American tax services company located in Dallas, Texas, asked the court to stay its effective date and to overturn it as unlawful. Ryan LLC argued the Non-Compete Clause Rule was unlawful because: “(i), the FTC acted with no statutory authority, (ii), the Rule is a product of an unconstitutional exercising of power, and (iii), the FTC’s actions, findings, conclusions, and decisions were arbitrary, and capricious.” Ryan LLC also argued the FTC had no power to create such a rule. Both Ryan LLC, and the FTC, believed that their arguments were correct. This led to a hearing. USDC judge Ada E. Brown Rules that the FTC Ban Is Unlawful
Judge Brown stated that while the Federal Trade Commission Act gives the FTC the power to create rules relating to “unfair or misleading acts or practices”, those powers “do not affirmatively grant substantive authority to the FTC” in the “unfair methods competition” context. Judge Brown also stated that the FTC was not given the authority to make rules based on “flawed evidence that does not consider the positive benefits associated with non-compete clauses.” Judge Brown then ruled that the FTC ban was an unlawful action by What the USDC ruling means for business owners
–Now that United States District Court has overturned the ban on non-compete clauses, small businesses can keep their clauses. Business owners can use their existing clauses or create new clauses. This case is not yet over as the Federal Trade Commission is likely to appeal this ruling. As the case continues to move through court, business owners should stay up-to-date.
Finally please consult your business attorney to ensure you are up-to-date with the current situation regarding Ryan LLC v. FTC, and the FTC’s non-compete clause ban in general. For more information, see How to Solve Issues Related to the Waiving Non-Compete clauses Following Potential FTC Reversal.
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Author:
Chad Alvis
Chad, a legal intern at the firm, is pursuing his dream of becoming a lawyer. Chad has a Bachelor’s degree in History and Politics from New Mexico State University. He is now entering his third year of Law School at the University of New Mexico School of Law. Chad will receive a Juris Doctorate from New Mexico State University in the spring of 2025, and take the New Mexico State Bar Exam in August.
Chad is interested in pursuing a career as a lawyer, specifically in the areas of Intellectual Property, Wills and Trusts or Business Law. Chad worked at New Mexico Legal Aid as well as the New Mexico State Fair Office before joining Law 4 Small Business. He helps the firm with research projects and assists the attorneys in any way he can.
