Businesses throughout the United States have been monitoring the lawsuit filed by Ryan LLC, which challenges the legality of the Federal Trade Commission’s ("FTC") Non-Compete Rule (the “Rule”). The Rule is scheduled to take effect on September 4, 2024. It makes most existing non-compete agreements unenforceable and prohibits new agreements except in limited circumstances. 

On July 3, 2024, the U.S. District Court for the Northern District of Texas granted a preliminary injunction[1] to the plaintiffs pending the Court’s decision on the legality of the Rule. The Court’s ruling means the Rule will not be enforced against the plaintiffs until the Court issues a final decision on the merits, which is expected by August 30, 2024. Interestingly, the Court did not issue a nationwide injunction under the major questions doctrine. The Rule is still set to go into effect on September 4, 2024, applying to all parties not involved in the litigation.

The Court found that the FTC likely exceeded its statutory authority under Section 6(g) of the FTC Act, and the plaintiffs have a high likelihood of succeeding on the merits. It determined that Section 6(g) does not necessarily grant the FTC substantive rulemaking authority over unfair methods of competition. The Court also criticized the Rule as arbitrary and capricious, citing insufficient consideration of alternatives and overreliance on flawed empirical evidence.

The June 28, 2024 U.S. Supreme Court decision in Loper Bright Enterprises v. Raimondo,[2] which limits the deference given to administrative agencies' interpretations of statutes under the long-standing Chevron doctrine, will likely impact Ryan. The Chevron doctrine traditionally allowed Courts to defer to an agency's interpretation of an ambiguous statute if the interpretation was reasonable. However, the Loper decision held that the federal Administrative Procedures Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and cannot defer to agency interpretation simply because a statute is ambiguous. The Ryan Court’s final ruling will likely hinge on its interpretation of the FTC's statutory authority and in light of Loper, it may be reasonable to expect the Rule will be struck down, at least partially.

Another challenge to the Rule, ATS Tree Service v. FTC, [3] is currently pending in federal court in Pennsylvania. The plaintiffs in that case have also sought a preliminary injunction, and are awaiting the Court’s decision on the motion. Dinsmore attorneys are monitoring the ever-changing landscape in Ryan and ATS, and are here to answer any questions.