Texas federal court halts FTC noncompete rule for all employers nationwide

On August 20, 2024, a federal court in Texas granted summary judgment to the plaintiffs in Ryan LLC v. Federal Trade Commission, setting aside and rendering unenforceable the Federal Trade Commission's (FTC) rule banning nearly all noncompetes for US workers. As a result, the rule will no longer take effect for any employer on September 4, 2024.

In reaching its decision, the court concluded both (i) that the FTC lacked the authority to promulgate substantive rules like the noncompete rule and (ii) that the agency’s rulemaking process for the noncompete rule did not support the breadth of the final rule or consider less disruptive alternatives, rendering the final rule arbitrary and capricious.

The same court had issued a limited preliminary injunction of the rule on July 3, 2024, which prevented enforcement of the rule only against the plaintiffs and intervenors in the case. This current ruling creates certainty by preventing application of the rule to all employers and on a nationwide basis.

An appeal of the decision is likely, but for now, businesses do not need to comply with any of the rule’s requirements – including provisions in the rule that would have required employers to send notices to impacted workers – unless or until the rule is reinstated on appeal.

The court’s ruling applies only to the FTC rule and does not impact state or local laws that may ban or limit noncompetes.

For any questions regarding the FTC’s noncompete rule or other noncompete restrictions, please contact the authors or your DLA Piper relationship attorney. You can find related resources on the DLA Piper Noncompetes and Competition Enforcement Hub.