On July 3, 2024, Judge Ada E. Brown of the United States District Court for the Northern District of Texas issued a preliminary injunction in Ryan et al. v. Federal Trade Commission, preventing the FTC’s rule banning most noncompetes from going into effect, but only for the party who brought the litigation challenging the rule, Ryan, Inc. The Court promised that it would enter a final ruling on the merits of the action by August 30, 2024—just days before the FTC rule is set to go into effect. That final ruling likely will have implications for the rule’s enforceability throughout the nation.
Judge Brown ruled that Plaintiffs are likely to prevail on the merits of their arguments, finding that the FTC both lacks authority to issue substantive regulations defining unfair competition and that, even if it had that authority, its use of that authority in issuing the noncompete ban was “arbitrary and capricious,” and therefore not permitted under the Administrative Procedures Act. With respect to the second finding, the Court specifically pointed to the “one size fits all” nature of the prohibition and criticized the FTC for not focusing on the types of noncompetes that the factual record had proven to impair fair competition. The Court also expressed concern that the FTC did not explore alternatives short of an outright ban of noncompetes that may have accomplished the same policy goals, but with fewer disruptive effects.
The Court declined, however, to issue a nationwide preliminary injunction against enforcement of the rule, citing unclear precedent about when such an injunction was appropriate and the Plaintiffs’ failure to articulate why the Court had authority under these circumstances to issue such broad relief.
So what happens next? The Court indicated in its opinion that it intends to issue a final opinion by August 30, 2024. It is difficult to see how that decision will differ materially from the Court’s preliminary injunction decision. The Plaintiffs, however, will certainly go to great lengths to address the shortcomings the Court said prevented it from ordering nationwide injunctive relief. A nationwide injunction has always been the Plaintiffs’ goal, and given how close they already are, they are certain to continue to press their case aggressively.
Dykema will continue to monitor developments related to the FTC’s noncompete ban providing guidance regarding this important topic. For more information about this ruling, or if you have questions about the impacts of a final decision, please contact Jim Hermon, Howard Iwrey, Cody Rockey, Elizabeth Voss, or your Dykema relationship attorney.