Non-Compete Agreements

2 weeks ago

In April of this year, the Federal Trade Commission (FTC) passed a rule disallowing the use of most non-compete agreements which was to take effect on September 4, 2024. Ryan, LLC, a global tax service company headquartered in Dallas Texas filed a motion for summary judgment in a Texas District Court, along with several Plaintiff-Intervenors on that recent rule, Rule 16 Code of Federal Regulations (CFR) § 910.1–.6. The FTC also filed a cross-motion.

The motions filed by the Plaintiff and Plaintiff-Intervenors was to “stay” and “preliminary enjoin the FTC from enforcing the rule.” Court documents indicate that since the court felt there was a “substantial likelihood that Plaintiffs would succeed on the merits…” the court “preliminarily enjoined implementation and enforcement” of the rule on July 3, 2024.Subsequently Ryan, LLC filed an Opposition to Defendant’s Motion for Summary Judgement and their brief. In addition, Plaintiff-Intervenors filed their response to the FTC’s Cross-Motion for Summary Judgment and their brief. However, the rule was still scheduled to become effective September 4, 2024.

Using the Administrative Procedure Act (APA), Ryan, LLC asserted that “the FTC’s actions were unlawful because they felt “(i) the FTC acted without statutory authority, (ii) the Rule is the product of an unconstitutional exercise of power; and (iii) the FTC’s acts, findings and conclusions were arbitrary and capricious.” Ryan, LLC also challenged the Rule as unlawful under the Declaratory Judgement Act.

The court concluded that the “Plaintiffs are entitled to summary judgment on all of their claims under APA and Declaratory Judgment Act because the FTC exceeded its statutory authority in implementing the Rule and the Rule is arbitrary and capricious” and granted injunctive relief. The court goes on to say it ‘must “hold unlawful” and “set aside” the FTC’s Rule” and in quoting the Fifth Circuit on some recent cases, signifies setting aside agency action as per § 706 under APA has a “nationwide effect.” The court ordered the Non-Compete Rule set aside and stated it “shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.” However, be aware that the issue may still be appealed by the FTC. So, barring any other action, employer’s can continue using their non-compete agreements.

At Southwestern HR Consulting (SWHRC) we have a team of experts who follow compliance issues related to laws that delineate how you can work with your employees. Contact us today to speak with a representative and learn about our services.