RYAN LLC V. FTC: THE UNCERTAIN FUTURE OF NON-COMPETE AGREEMENTS

Author: Ian McNabb, Associate Editor

I. FTC Bans Non-Compete Agreements

Roughly one in five Americans is subject to a non-compete agreement,[i] meaning nearly 30 million people are unable to actively participate in the economy to their fullest extent.[ii] On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule banning non-compete agreements nationwide.[iii] The FTC claimed that this ban would promote competition and protect workers’ freedom to change jobs, inevitably increasing innovation.[iv]

A non-compete agreement prevents one of the parties from participating in similar business ventures or employment for a certain amount of time after separating from the other contracting party.[v] There are some exceptions in the FTC’s rule, notably for the sale of businesses and for those who are currently under a non-compete agreement as “senior executives.”[vi] A senior executive is defined by the FTC as a worker who was in a policy-making position and who made over $151,164 in the preceding year.[vii] No new non-compete agreements could be entered into under the FTC’s new ban, not even for those considered senior executives.[viii] Overall, the ban created a brightline rule that a non-compete agreement is unenforceable for almost every worker.[ix]

The idea that non-compete agreements are an anticompetitive restraint on trade is not new.[x] A few states had already banned or severely limited the application of non-compete agreements.[xi] California has even gone as far as limiting the effect of out of state non-compete agreements can have on persons in California.[xii] When polled, 61% of Americans supported the FTC’s ban on non-compete agreements. [xiii]

II. The FTC’s Ban Blocked by an Injunction

The FTC’s ban was supposed to go into effect on September 4, 2024.[xiv] Yet September 4 has come and gone, and non-compete agreements are still enforceable.

Ryan LLC, a private organization, brought a pre-enforcement challenge against the FTC in the Northern District of Texas to block the ban against non-compete agreements.[xv] In July, the court issued a preliminary injunction, blocking the ban from going into effect nationally.[xvi] Then in August, the court completely tossed out the ban under several different rationales when it granted summary judgment to Ryan LLC.[xvii] The court held that the FTC exceeded its statutory authority in implementing the rule banning non-compete agreements and that the FTC lacked the statutory authority to create substantive rules through 15 U.S.C. § 57(a), the statute that gives the FTC authority to create statements of policy and rules.[xviii] It also found that the ban on non-compete agreements was arbitrary and capricious as it was unreasonably overbroad without a reasonable explanation.[xix]

III. Is The Rule No Longer Going to Take Effect?

For now, the rule is unenforceable.[xx] And based on the general election results, the rule is almost surely to die under the Trump administration. Non-compete agreements can still be entered into and enforced.[xxi]

The FTC could still appeal this decision to the Fifth Circuit.[xxii] Yet its chances of winning an appeal to the Fifth Circuit are currently dubious. The Fifth Circuit recently issued two decisions ruling against other agencies using the new Loper Bright framework adopted by the Supreme Court that overturned Chevron deference.[xxiii] Even if the Supreme Court were to hear the case, it is speculative as to whether the ban would survive due to its recent attitude towards agencies.[xxiv]

IV. What’s Next for Non-Compete Agreements?

Likely, nothing.[xxv] Several states already have their own rules and requirements for the enforcement of non-compete agreements.[xxvi] Still, if the Ryan LLC decision is upheld on appeal, it is unlikely that any federal rule banning non-compete agreements would be implemented as Congress is unlikely to pass such legislation.[xxvii]

V. Are There Alternate Routes for Banning Non-Compete Agreements?

While odds of a successful appeal or congressional action are slim, there are still some options available to those bound by these agreements. The FTC can still address non-compete agreements through case-by-case enforcement actions.[xxviii] Such action could be justified on a rationale that non-compete agreements may be violative of public policy if done for no other reason than to prevent competition.[xxix]  As the new administration emerges, it is unlikely that the near future will bring Americans a substantive ban on non-compete agreements, at least at the federal level, leaving almost 30 million people subject to their employer’s forced limitations.

[i]FTC Announces Rule Banning Non-Competes, FED TRADE COMM’N (Apr. 23, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes.

[ii] Id.

[iii] Id.

[iv] Id.

[v] Sneha Solanki, What is a Noncompete Agreement? THOMSON REUTERS LAW BLOG (July 19, 2024), https://legal.thomsonreuters.com/blog/what-is-a-noncompete-agreement/.

[vi] Id.

[vii] FTC Non-Compete Clause Rule, 16 C.F.R. § 910.1 (2024).

[viii] FTC Announces Rule Banning Non-Competes, supra note i.

[ix] Sneha Solanki, supra note v.

[x] Cal. Bus. & Prof. Code § 16600 (2023).

[xi] Zachary Folk, Which States Have Banned Non-Compete Clauses? Here’s What To Know As New York Could Be Next, FORBES (Dec. 6, 2023), https://www.forbes.com/sites/zacharyfolk/2023/12/06/which-states-have-banned-non-compete-clauses-heres-what-to-know-as-new-york-could-be-next/.

[xii] June Monroe & Elise O’Brien, Two New California Non-Compete Laws Take Aim at Employers in The Golden State and Beyond, CALIFORNIA LAW. ASS’N (2023), https://calawyers.org/business-law/two-new-california-non-compete-laws-take-aim-at-employers-in-the-golden-state-and-beyond/.  

[xiii] Clifford Young & Chris Jackson, Most Americans Support Banning Noncompete Agreements, IPSOS (Jan. 6, 2023), https://www.ipsos.com/en-us/news-polls/most-americans-support-banning-noncompete-agreements.

[xiv] Non-Compete Clause Rule, 89 Fed. Reg. 38342, 38506 (May 7, 2024) (to be codified at 16 C.F.R. § 910).

[xv] Ryan LLC v. Fed. Trade Comm'n, No. 3:24-CV-00986-E, 2024 WL 3297524, (N.D. Tex. July 3, 2024).

[xvi] Id.

[xvii] Ryan, LLC v. Fed. Trade Comm'n, No. 3:24-CV-00986-E, 2024 WL 3879954, at *1 (N.D. Tex. Aug. 20, 2024)

[xviii] Ryan LLC v. Fed. Trade Comm'n, No. 3:24-CV-00986-E, 2024 WL 3297524, at *8 (N.D. Tex. July 3, 2024).

[xix] Id. at *11.

[xx] Id.

[xxi] Id.

[xxii] Id.

[xxiii] Shane Pennington, Fifth Circuit Review – Reviewed: The Agency Losing Streak Under Loper Bright Continues, YALE J. ON REGUL. (Sep. 9, 2024) https://www.yalejreg.com/nc/fifth-circuit-review-reviewed-the-agency-losing-streak-under-loper-bright-continues/.

[xxiv] Amy Howe, Supreme Court Strikes Down Chevron, Curtailing Power of Federal Agencies, SCOTUSBLOG (June 28, 2024), https://www.scotusblog.com/2024/06/supreme-court-strikes-down-chevron-curtailing-power-of-federal-agencies/.  

[xxv] Jeanne Sahadi, Noncompete Agreements Aren’t Going Anywhere. What To Know If You Sign One, CNN (Sept. 2, 2024), https://www.cnn.com/2024/09/02/business/noncompete-agreements-what-to-know-now/index.html.  

[xxvi] June Monroe & Elise O’Brien, supra note xii.

[xxvii] Id.

[xxviii] Id.

[xxix] Id.