A recent Texas federal court ruling has put a halt on the enforcement of the FTC’s ban on non-compete agreements. Learn more about this ruling and the implications it has for employers from Shauna Correia and Jacqueline Simonovich as they give an update from their previous episode in this installment of California Employment News.

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Jackie:

Hi, I’m Jackie Simonovich, and I’m here with partner Shauna Correia. In our last California Employment News episode, Understanding the FTC Non-Competed Ban: Key Insights for Employers, we mentioned that in a Texas case, Ryan LLC versus Federal Trade Commission, the Court was going to issue a decision in late August. Well, the Court made that decision on August 20th, and it invalidated FTC Rule banning most non-compete agreements. Shauna, can you remind us why this is good news for employers?

Shauna:

Yeah. As just a brief recap, the FTC Non-Compete Rule would have imposed a broad nationwide ban on most forms of non-competition agreements. Most employers would have been subject to the rule, and there were only a few narrow exceptions that we talked about in our last episode. But what the rule would have done would have taken away a significant tool that entities and individuals have used in the past in the form of covenants not to compete that were used to protect their intellectual property from having their former independent contractors or employees go off instead to competing businesses after their engagement or employment ended. So, Jackie, can you explain more about how the Ryan LLC decision has changed the landscape once again?

Jackie:

Sure. Well, in Ryan, the court first issued a preliminary injunction, but that only applied to the parties in the case. Then both parties filed motions for summary judgment, and the court granted Ryan’s motion, and it denied the FTC’s motion. In a lawsuit, when the court grants a motion for summary judgment, that ends the case, meaning Ryan won this lawsuit. When the court granted Ryan’s motion, it found that the FTC had exceeded its authority when it made the rule. It said the FTC could prevent entities from using unfair methods of competition, but it couldn’t make substantive rules as it had to prohibit those unfair methods of competition. Shauna, can you explain what happens now?

Shauna:

The rule would have made an effect on September 4th, but now because of this decision, the FTC will not be able to put it into effect or enforce this rule anywhere in the United States. The FTC still can, as you mentioned, use other ways prevent unfair methods of competition, but this rule will not apply. The FTC also still can appeal the Ryan decision, and ultimately, it’s likely that the Supreme Court may end up deciding this issue because of the circuit split that we talked about the last time. But right now, the FTC rule is effectively dead on arrival. That’s all the time we have for today, but please visit our website at www.thelelawblog.com, where you can view more episodes of the California Employment News, and subscribe to our blog for updates on this and other hot topics. Thanks.