As we’ve reported, the Federal Trade Commission has attempted to ban enforcement of noncompete agreements in employer-employee contracts. However, the United States Chamber of Commerce and Ryan LLC (a tax advising group) sued the FTC, challenging its authority to ban noncompetes, as only Congress has such power.  

According to Ryan, LLC’s complaint —  filed in the United States District Court for the Northern District of Texas — the FTC lacks the authority to prohibit non-compete agreements. (Note: The Chamber of Commerce and Ryan cases were consolidated into simply “Ryan LLC v. the FTC.”)

Key Ruling 

There, in Ryan LLC v. the FTC, on August 20, 2024, a federal judge ruled against the FTC, finding that the ban was both: 

1. 1. An unconstitutional abuse of power since only Congress, not the FTC, can pass
   2. Arbitrary and capricious.  The judge wrote:  “The [FTC’S] lack of evidence as to why they chose to impose such a sweeping prohibition … instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.”
   3. Violation of the Administrative Procedures Act.  The opinion also provides that the FTC’s rule violated the Administrative Procedure Act (APA) and thus was an unlawful agency action.   

Nationwide Implications

Most importantly, the August 20, 2024 decision in Ryan, LLC has national implications. Thus, it applies to all people and businesses in the US. It’s not limited to the parties in that case.  As such, in effect, the FTC’s ban on non-compete enforcement is dead, unless and until an appellate court holds otherwise.  

What Will Happen As Ryan Heads the Supreme Court? 

The judge’s decision in Ryan, LLC, above, may not be final.  In fact, the FTC will likely appeal. In the interim, look for some employers to be nervous about attempting to enforce a noncompete. 

However, this is not necessarily good news for employees.   

With the status of the ban in dispute in federal court in the Ryan, LLC action, many employers will pivot — from trying to enforce non-competes — to instead use numerous other means to protect their business from competition:  

• Look for employers to ask employees to sign trade secret agreements, characterizing nearly all of the employer’s information a trade “secret,” even though, statutory, only certain information that the employer spends money developing — such as customer lists — can constitute a protectable “secret.” 
• Also watch out for non-solicitation agreements.  These shall remain enforceable, even if a non-compete ban survives challenge through the courts. Employers are expected to get aggressive about accusing former employers of “soliciting” customers or current employees of the former employer. Employees must be very careful communicating with anyone associated with a former employer.