For those of you who have been following along with the Federal Trade Commission’s (FTC) looming noncompete ban and the various challenges it has presented, there comes good news for employers from a Texas federal court. On August 20, 2024, the court issued its final opinion in Ryan LLC v. Federal Trade Commission, setting aside the FTC’s ban on employee noncompetition agreements. As previously reported, the court granted a preliminary injunction in July limited to just the named plaintiffs in the lawsuit seeking to block the FTC’s noncompete rule. However, in its final opinion in Ryan LLC, the court expanded that injunction, providing universal, nationwide relief from the FTC’s noncompete ban.

In issuing its opinion, the court concluded that the FTC lacked statutory authority to promulgate the noncompete rule under the Administrative Procedure Act (APA). This means the rule will not take effect and cannot be enforced on a nationwide basis. In addition, the court found that the FTC’s rule was arbitrary and capricious because it would ban all noncompetes, not just those that create the policy concerns noted by the agency. Of note, the court’s decision was guided by the Supreme Court’s opinion in Loper Bright Enterprises v. Raimondo, and its overruling of the decades-old Chevron deference.

The decision in Ryan LLC provides some much-needed certainty to employers in advance of the scheduled September 4 effective date of the FTC’s noncompete rule. Based on the Texas court’s ruling, employers are no longer required to notify current and former employees that their noncompetes are unenforceable, and they may proceed as status quo. However, now is an especially critical time to ensure that your existing noncompetes are precisely tailored to meet the state law specifics in which you operate.

Looking forward, it is very likely that the FTC will appeal the decision to the Fifth Circuit Court of Appeals and then, if necessary, to the Supreme Court. Although the Fifth Circuit Court of Appeals tends to be business-friendly, it is uncertain how these challenges to the rule will play out. For now, employers can breathe a sigh of relief knowing that for the foreseeable future, they may continue to enter into and enforce their noncompetes in accordance with state laws.

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