In an eagerly awaited decision, United States District Judge for the Northern District of Texas Ada Brown issued an order striking down the Federal Trade Commission’s Noncompete Clause Rule, preventing it from taking effect on September 4 or thereafter. As we previously reported, the Federal Trade Commission announced in April 2024 its final rule banning most noncompete restrictions (the “Rule”), with an effective date of September 4. Several lawsuits challenging the Rule were filed shortly thereafter.
On July 3, Judge Brown issued a preliminary injunction in Ryan v. FTC, temporarily preventing the enforcement of the Rule solely with respect to the named plaintiffs in that case, and announced that she would issue a further decision in the case by August 30.
Yesterday, Judge Brown released her final decision, holding the Rule unlawful and setting it aside with nationwide effect. Judge Brown held both that the FTC lacked the authority to enact the Rule and that the Rule was arbitrary and capricious. Judge Brown cited Fifth Circuit precedent interpreting the Administrative Procedure Act in ruling that the relief would not be party-specific, as the FTC had requested. Shortly after the court’s decision, FTC spokesperson Victoria Graham stated that the FTC was “seriously considering” an appeal, which would bring the case to the Fifth Circuit.
Unless and until there are further developments, employers nationwide can stand down on preparing or issuing noncompete notices or making changes to noncompete restrictions that the Rule would have required by September 4. That said, employers are reminded that, even in the absence of the Rule, the legal landscape for noncompetes remains complex and ever-evolving. Specifically, an increasing number of states are implementing nuanced statutory restrictions, there are jurisdictional battles over which states’ laws should apply to noncompetes between employers and employees in different states, and the NLRB has stated its position that noncompetes constitute an unlawful interference with employees’ Section 7 rights.
WilmerHale’s labor and employment and antitrust specialists will continue to monitor all noncompete-related developments and are available to provide employers with tailored guidance.
