By: Christopher S. Channel, Esq.
On April 26, 2024 we issued a client alert regarding the FTC’s final rule banning non-compete clauses (“Final Rule”) in agreements nationwide as violative of Section 5 of the FTC Act. We noted that the rule was not effective until 120 days after publication, and that lawsuits seeking injunctions against the rule had already been filed.
One of those lawsuits, Ryan LLC, et al v. Federal Trade Commission, in the United States District Court for the Northern District of Texas, reached a final judgment on August 20, 2024. The final judgment specifically holds, “The Court sets aside the Non-Compete Rule, 16 C. F. R. § 910.1–.6, and the Rule shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”
The FTC has indicated that it may appeal.
What does this mean for businesses?
This means that the Final Rule did not become effective. Businesses are not obligated to comply with the notification requirements of the Final Rule, unless and until an appellate court overturns the Final Judgment in Ryan, LLC. Therefore, businesses may continue to utilize non-compete agreements to the extent permitted by state law in the applicable jurisdiction.
State laws vary greatly from complete prohibition of non-competes to specific requirements for geographic scope, temporal scope, the type of consideration that is considered adequate to support a non-compete, and the income levels or type of employee for which a non-compete is enforceable. We encourage you to consult with a Leech Tishman attorney if you have any questions regarding the use and enforcement of non-compete agreements in your specific jurisdiction.
If you have any questions about this federal ruling, please contact Chris.
Chris is a Partner with Leech Tishman and a member of the Litigation and Labor & Employment Practice Groups, as well as Co-Leader of the firm’s Restrictive Covenants / Non-Competes and Product Liability Defense Groups. Chris is based in the firm’s Pittsburgh office.