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Alerts and Updates

Texas Federal Court Enjoins FTC from Enforcing Ban on Noncompetes Against Parties to Lawsuit, But Refuses to Issue Nationwide Injunction

July 3, 2024

Texas Federal Court Enjoins FTC from Enforcing Ban on Noncompetes Against Parties to Lawsuit, But Refuses to Issue Nationwide Injunction

July 3, 2024

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For now, the noncompete ban remains scheduled to take effect on September 4, 2024, with respect to all covered employers other than the plaintiff and plaintiff-intervenors in the Ryan lawsuit.

As reported in our prior Alert, on April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 to approve a final rule banning noncompete agreements with all workers 120 days after publication in the Federal Register (i.e., on September 4, 2024), and invalidating existing noncompetes with all workers except senior executives. Ryan LLC, a national tax preparation service, filed suit challenging the FTC’s noncompete ban shortly after it was issued. The U.S. Chamber of Commerce and other business associations later joined the lawsuit. The parties challenging the noncompete ban filed motions to stay/enjoin the ban. Following briefing, the court indicated that it would decide the motions to stay/enjoin the noncompete ban without requiring a hearing. On July 3, 2024, the U.S. District Court for the Northern District of Texas enjoined the FTC from enforcing its noncompete ban against the plaintiff and plaintiff-intervenors in the Ryan lawsuit and stayed the noncompete ban as to those parties, but refused to issue a nationwide injunction or stay that would apply to other employers, see the court opinion. The court also refused to extend the scope of the injunction and stay of the noncompete ban to members of the U.S. Chamber of Commerce.

In a decision authored by presiding Judge Ada Brown, the court based its ruling enjoining and staying enforcement of the noncompete ban as to the plaintiff and plaintiff-intervenors on the rationale that “the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g).” The court noted that “[w]hile this order is preliminary, the Court intends to rule on the ultimate merits of this action on or before August 30, 2024.”  

In the Wake of the Court’s Decision, What Comes Next?

It is highly likely that one or more parties will appeal the court’s ruling enjoining and staying enforcement of the noncompete ban as to the named plaintiff and plaintiff-intervenors. This includes potential appeals seeking to enjoin enforcement of the noncompete ban nationwide pending appeal. For now, the noncompete ban remains scheduled to take effect on September 4, 2024, with respect to all covered employers other than the plaintiff and plaintiff-intervenors in the Ryan lawsuit.

Is the Noncompete Ban Subject to Any Other Court Challenges?

Yes. ATS Tree Services LLC filed a separate lawsuit in the U.S. District Court for the Eastern District of Pennsylvania challenging the FTC noncompete ban. See ATS Tree Services, LLC v. FTC, Civ. No. 2:24-cv-01743 (E.D. PA). The court in the ATS litigation scheduled a hearing for July 10, 2024, and indicated its intent to rule on ATS’ preliminary injunction request before July 23, 2024. 

What Should Employers Do Now?

Employers should take the following steps, if they have not done so already, in the event that the noncompete ban withstands legal challenge:

  • Identify a designated individual or individuals to speak on behalf of the company regarding the rule and develop consistent messaging to the worker population.
  • Work with counsel to review agreements with current and former workers to determine which agreements would fall within the noncompete rule.
  • Work with counsel to review agreement forms for purposes of assessing potential changes to those forms.

For More Information

If you have any questions about this Alert, please contact Lawrence H. Pockers, Shannon Hampton Sutherland, any of the attorneys in our Non-Compete and Trade Secrets Group, Sean P. McConnell, any of the attorneys in our Antitrust and Competition Group, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.