In April 2024, the Federal Trade Commission (FTC) issued a rule, that was scheduled to take effect September 4, 2024, banning nearly all noncompete agreements with limited exceptions (the “Rule”). Since then, the Rule has faced many legal challenges.  Just a month after a Pennsylvania federal court declined to preliminarily enjoin the Rule, the U.S. District Court for the Northern District of Texas, in Ryan LLC v. FTC, on August 20, 2024, expanded its prior preliminary injunction, that had applied only to the plaintiff in that case, to prohibit the FTC from enforcing the Rule nationwide.

In its ruling, the Texas district court found the Rule to be arbitrary and capricious based on the FTC’s failure to justify the scope of the non-compete ban and further found that the FTC exceeded its authority by engaging in substantive rulemaking, which the court stated is unauthorized by the Federal Trade Commission Act. Absent a successful appeal by the FTC, the Rule will not go into effect.

Future developments on this issue can arise from various places – from an appeal by the FTC of the court’s decision in the Ryan case, from Congress, and from state legislatures that continue to scrutinize non-competes and related restrictive covenants within their states. Notably, Minnesota enacted a law to broaden its previous ban of non-competes between employers and employees by prohibiting service providers from restricting customer solicitations or hiring of the service providers’ employees or independent contractors in both existing and future contracts.  Companies with operations in Minnesota must notify their workers of this change and explain that the applicable restrictive covenant is void and unenforceable. As a result, this issue bears watching for any such developments.