Court Case Alert: Texas Federal Court Blocks FTC Ban On Non-Compete Clauses For Now

     On July 3, 2024, the federal district court for the northern district of Texas granted a preliminary injunction in Ryan LLC v. FTC that postpones the effective date of a Federal Trade Commission (FTC) rule that bans the use of non-compete clauses in agreements between employers and workers.  The FTC’s Rule, which we discussed in a prior article, is set to become effective on September 4, 2024.

     Although the federal district court’s decision only blocks the FTC from enforcing its ban on the Ryan parties until the court issues a final decision, the writing seems to be clearly written on the wall for the FTC’s ban on non-compete clauses.  Indeed, one of the factors that courts use to grant preliminary injunctions is the likelihood of eventual success in the case by the party seeking the preliminary injunction.  And in Ryan, the district court pulled no punches in explaining why it believed the plaintiffs would ultimately prevail in striking down the FTC’s ban.  In short, according to the district court, the FTC lacked the authority to create the substantive rule that banned non-compete clauses.

     The district court’s rationale certainly may have implications on the FTC’s rule-making authority more generally.  With respect to the FTC’s ban on non-compete clauses, government contractors should note that the preliminary injunction does not block the FTC’s enforcement of the ban on other parties or in other judicial jurisdictions.  That said, the district court notified the parties in Ryan that it intended to issue its final decision by August 30, so government contractors should stay tuned to see if the Texas federal court - or any other court, for that matter - issues a final decision that blocks enforcement of the FTC’s ban on a nationwide basis.