FTC Appeals Texas Court’s Ruling Blocking FTC’s Non-compete Ban

The Federal Trade Commission (FTC) has appealed a ruling from a Texas district court that set aside the FTC’s rule banning non-competes with employees (the “Rule”). As we previously reported, on August 20, 2024, Judge Ada E. Brown in the U.S. District Court for the Northern District of Texas granted a nationwide injunction against the Rule in Ryan LLC v. Federal Trade Commission. On October 18, 2024, the FTC filed a notice of appeal, teeing up the case for the U.S. Court of Appeals for the Fifth Circuit.

What This Notice of Appeal Means

The Texas district court’s final order enjoined enforcement of the Rule nationwide. The court held that the FTC had improperly exceeded its statutory authority by creating a substantive Rule banning non-competes. The court also concluded that the Rule was arbitrary and capricious, in violation of the Administrative Procedure Act.

The FTC’s notice of appeal does not immediately impact the status of the non-compete ban. Absent a Fifth Circuit order to the contrary, the Texas district court order setting aside the Rule remains in place, meaning that the non-compete ban continues to remain unenforceable nationwide.

Litigation over the validity of the Rule has taken place in other courts across the country. In July, the FTC prevailed against a challenge in federal court in Pennsylvania in ATS Tree Services, LLC v. Federal Trade Commission.  Plaintiff ATS Tree Services withdrew that case.  But on August 15, 2024, a Florida district court granted a preliminary injunction preventing enforcement of the Rule, limited to the named plaintiff only, in Properties of the Villages, Inc. v. Federal Trade Commission. On September 24, 2024, the FTC appealed that preliminary injunction ruling to the Eleventh Circuit. Though the FTC’s Eleventh Circuit appeal involving a preliminary injunction is at an earlier procedural stage than the FTC’s Fifth Circuit appeal involving a final order, the existence of two appeals in different circuit courts would open the door to potential circuit conflict. Such a split would significantly increase the chance of review by the Supreme Court.

What Employers Can Do Now

For now, as the Fifth Circuit begins its review of Ryan, companies can continue using non-competes. However, employers should remain vigilant and proactive in reviewing their non-compete agreements and practices.

Separate from the matter of the enjoined Rule broadly banning non-competes, the FTC continues to believe that it can take individual enforcement actions against non-competes. Other regulators, like the National Labor Relations Board, as well as states, continue to limit, and in some cases ban, non-competes. Given the evolving landscape of non-competes, employers should consider taking this opportunity to review their non-compete agreements and practices.