As I reported in the May 7, 2024 issue of Billboard Insider (“ROTHFELDER ON THE FTC’s NON-COMPETE RULE”), the Federal Trade Commission issued an administrative rule banning non-compete agreements in employment. These non-compete clauses are regularly used in the out of home industry, and are designed to protect the business and good will of employers by establishing reasonable restrictions on the geographic, temporal, and scope of competitive employment. Under the FTC’s new rule, passed on April 23, 2004, almost all existing non-competition clauses, no matter how conservatively or reasonably drafted, were rendered unenforceable across the Country.

On the same day, Ryan, LLC, a tax services firm, joined by the US Chamber of Commerce and other business trade associations, sued to enjoin and validate the FTC’s rule. On July 23, 2024, Ada Brown, Judge for the United States District Court for the Dallas Division of the Northern District of Texas, issued a preliminary injunction against enforcement of the rule. And, on August 20, 2024, Judge Brown granted the Plaintiffs’ motion for summary judgment, ruling on the merits that the FTC lacked the statutory authority and acted arbitrarily and capriciously in passing the rule, thereby invalidating and preventing the rule from becoming effective on the scheduled date of September 4, 2024 or thereafter.

In so ruling, Judge Brown, an appointee of former President Donald Trump, went on to that hold the opinion had nation-wide effect: “Having concluded that (i) the FTC promulgated the Non-Compete Rule in excess of statutory authority, and (ii) the Rule is arbitrary and capricious, the Court must “hold unlawful” and “set aside” the FTC’s Rule…As [the Fifth Circuit] put it in a couple of recent cases, setting aside agency action under Section 706 has ‘nationwide effect,’ is ‘not party-restricted,’ and ‘affects persons in all judicial districts equally.’”

The FTC responded to Judge Brown’s opinion by promising further appeals: “We are seriously considering a potential appeal, and today’s decision does not prevent the FTC from addressing noncompetes through case-by-case actions.” In a separate case, another federal court in Pennsylvania refused to block the FTC rule in July. Thus, more litigation over the FTC’s rule and non-competition agreements are expected.

For clarity’s sake, the FTC rule (banning non-compete agreements) is NOT in effect. It was held unlawful, and its original effective date of 9/4/24 is stayed.

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