Non-compete rule update: FTC appellate decision overturns ban | Pierce Atwood LLP

The Federal Trade Commission (FTC) has appealed a decision by the federal district court in Texas invalidating its rule governing non-compete agreements.

In August 2024, in the case of Ryan LLC v. Federal Trade CommissionJudge Ada Brown of the Northern District of Texas ruled that the FTC had exceeded its authority when it adopted a regulation that essentially prohibits non-compete agreements in the United States.

Judge Brown issued a preliminary injunction against the rule in July and in August granted the plaintiffs’ motion for summary judgment, which constitutes a final decision at the district court level. The FTC filed its appeal on October 18, 2024, and we expect it will take at least six months before the US Court of Appeals for the Fifth Circuit issues its decision.

In addition to finding that the FTC exceeded its statutory regulatory authority, Judge Brown found the rule to be arbitrary and capricious, because it is overbroad without a reasonable basis, contrary to the law governing the making of rules by federal agencies. These two holdings are independent of each other, meaning that on appeal the FTC will likely have to persuade the US Court of Appeals for the Fifth Circuit that both are wrong to save its rule .

Meanwhile, two more cases challenging the FTC rule are seeping elsewhere in the federal court system. In July, a district court in Philadelphia reversed by refusing to enjoin the rule; this case remains pending at the district court level.

A Florida court issued its own preliminary injunction on August 15, 2024; the FTC appealed this move to the 11th US Circuit Court of Appeals on September 24. This appeal, however, is only a preliminary injunction, and regardless of what the 11th Circuit rules, the case will have to be remanded to the Florida district court for further proceedings.

The Texas case, therefore, remains one to watch for two reasons. First, Judge Brown made his decision effective nationwide, so until and unless a higher court overturns that decision, the FTC cannot enforce the rule. Second, in granting the plaintiffs’ motion for summary judgment, Judge Brown issued a final judgment, so if the 5th Circuit agrees with either reason for its decision, there likely will be no prison, and the case will be the first. ripe for appeal to the US Supreme Court.

(See source.)