In a pro-business opinion and order issued on August 20, 2024, in Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, pending before the United States District Court for the Northern District of Texas, Dallas Division, the federal court set aside the Federal Trade Commission’s (FTC) final rule banning non-compete agreements[1](the “Non-Compete Rule”).[2] The Texas federal court went a step further and ordered that the Non-Compete Rule “shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”[3]
In its 26-page memorandum opinion, the Texas federal court concluded that the FTC lacked statutory authority to promulgate the Non-Compete Rule, and further found that the rule is arbitrary and capricious.[4] The court noted the lack of evidence to support the Non-Compete Rule’s sweeping prohibition against non-competes versus targeting of specific, harmful non-competes. The court further found that the Non-Compete Rule “is based on inconsistent and flawed empirical evidence, fails to consider the positive benefits of non-compete agreements, and disregards the substantial body of evidence supporting these agreements.”
Texas businesses and others across the United States are breathing a sigh of relief because the Texas federal court determined that its ruling extends nationwide based on certain provisions in the Administrative Procedure Act and controlling precedent out of the United States Court of Appeals for the Fifth Circuit.[5]
The FTC initially indicated its intent to appeal the Texas federal district court’s decision, and therefore, it is highly likely that the Fifth Circuit will evaluate both the court’s decision and the Non-Compete Rule in the coming months.
You can read the memorandum opinion issued in Ryan LLC below.
[1] The FTC’s rule banning non-competes is located at 16 C.F.R. § 910.1-.6.
[2] Memorandum Opinion and Order (Doc. 211), Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, currently pending in the United States District Court for the Northern District of Texas, at pp. 26-27.
[3] Final Judgment (Doc. 212), Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, currently pending in the United States District Court for the Northern District of Texas, at p. 1.
[4] Memorandum Opinion and Order (Doc. 211), Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, currently pending in the United States District Court for the Northern District of Texas, at p. 26.
[5] Id., at pp. 26-27.
