A federal court in Texas has issued a decision holding that the Federal Trade Commission’s (“FTC”) Rule banning the use of employee non-compete agreements is unlawful. See Ryan, LLC v. Federal Trade Commission (U.S. Dist. ND Texas 2024). The court held that the FTC’s Rule was invalid nationwide and was not limited to the parties in the case. On specific legal grounds, the court held that the FTC’s Rule violated the Administrative Procedures Act in two aspects: the Rule was deemed arbitrary and capricious, and the FTC exceeded the authority granted to it by the Federal Trade Commission Act when the FTC issued its Rule banning non-compete agreements. The court’s decision was not unexpected since, earlier, the court had stated similar views in ruling on a Motion To Stay enforcement of a preliminary injunction. See here.

As discussed below, for FTC Enforcement Defense Law Firms — like Revision Legal — the Ryan, LLC decision is extremely valuable as a legal pathway to defending against FTC enforcement actions and investigations.

The Ryan, LLC court’s ruling is a direct result of a recent decision by the U.S. Supreme Court in Loper Bright Enterprises v. Ramondo. Prior to Loper Bright, federal courts were required to give great deference to federal agencies — like the FTC — when those agencies interpreted their own enabling statutes. After Loper Bright, that level of deference is no longer required. Now, federal courts will make their own interpretations of what enabling statutes allow.

In Ryan, LLC., the FTC’s Rule banning non-compete agreements was challenged, in part, on the grounds that the FTC did not have the statutory authority to issue the Rule. The FTC argued that it DID have such authority based on its own interpretation of its enabling legislation. Under the pre-Loper Bright standard, the Texas federal court would likely have accepted that interpretation under the “great deference” standard. After Loper Bright changed the deference standard, the Texas court ruled otherwise. Specifically, the FTC interpreted the Federal Trade Commission Act to give it substantive rule-making authority with respect to “unfair methods of competition.” However, the court looked to the specific statutory section authorizing substantive rule-making — Section 6(g) codified at 15 U.S.C. 57a — and did not see the words “unfair methods of competition.” Rather, the language allows the FTC to promulgate “interpretive rules and general statements of policy with respect to unfair or deceptive acts or practices in or affecting commerce.” Since the words “unfair methods of competition” are not included, then the FTC has no rule-making authority with respect to “unfair methods of competition.” For that and other reasons, the court held that the FTC’s Rule banning non-compete agreements was invalid.

Why this matters for FTC enforcement legal defense

As can be seen, the Ryan, LLC court’s decision is extremely nuanced. This is a level of nuance that FTC enforcement attorneys would quickly reject. However, going forward, the FTC — and other federal administrative agencies — will not be able to reject these kinds of nuanced text-based arguments. The defense focus now shifts to the federal judge involved in the case. Importantly, federal judges are willing to engage with such nuanced arguments and have no built-in bureaucratic bias toward rejecting such nuanced arguments. In short, it will now be easier to defend against regulatory agency enforcement actions and efforts. This is true even if the Ryan, LLC decision is overturned on appeal.

State Non-Compete Laws Continue to Apply

The invalidity of the FTC’s nationwide rule banning non-compete agreements does not mean that non-compete agreements are freely enforceable in all states. State-level restrictions on non-competes remain fully in effect and, in several states, are quite stringent. Employers and employees must understand both the federal and state-level legal landscape.

California has long had the most restrictive non-compete law in the country. California Business and Professions Code § 16600 voids virtually every non-compete agreement as contrary to public policy, with narrow exceptions for the sale of a business and dissolution of a partnership. California courts have held that this prohibition applies even when the non-compete agreement is governed by another state’s law if the employee lives or works in California. Recent amendments have made it a civil violation for an employer to impose an unenforceable non-compete on a California employee.

Minnesota banned non-competes effective January 1, 2023, making it the most recent state to join California, North Dakota, and Oklahoma in prohibiting the agreements entirely. Several other states — including Washington, Virginia, Illinois, Massachusetts, and Maryland — permit non-competes only for employees above certain salary thresholds and impose strict limitations on duration and geographic scope.

What Employers Should Do After Ryan, LLC

The Ryan, LLC decision preserved the legal enforceability of non-compete agreements under applicable state laws. For employers, this development requires a careful and state-specific review of existing employment contracts. Employers should focus on the following:

• Review existing non-compete agreements by state — determine which employees are subject to non-competes and evaluate whether those agreements comply with the applicable state law
• Check enforceability requirements — courts routinely refuse to enforce non-competes that are too broad in scope, duration, or geographic area; overly broad agreements may be deemed void in their entirety in some states
• Ensure consideration — a non-compete offered only after an employee begins work, without additional consideration like a raise or signing bonus, may be unenforceable in states that require independent consideration
• Evaluate the legitimate business interest — to be enforceable, a non-compete must protect a legitimate business interest such as trade secrets, confidential customer relationships, or specialized training
• Consider state blue-penciling rules — some states will reform an overly broad non-compete to make it enforceable rather than voiding it entirely; others will not

The Ongoing Legislative and Regulatory Landscape

While the Ryan, LLC decision halted the FTC’s specific 2024 rulemaking, the broader policy debate over non-competes is far from settled. The FTC may attempt to promulgate a narrower rule in the future, particularly one that targets non-competes for lower-wage workers who have less bargaining power. There is strong bipartisan support in Congress for some form of federal limitation on non-competes, and several bills have been introduced — including the Workforce Mobility Act, which would ban most non-competes at the federal level through legislation rather than FTC rulemaking.

The distinction matters legally: while the FTC’s rulemaking authority is limited as Ryan, LLC held, Congress has broader authority to regulate employment practices through legislation. A statutory ban on non-competes would not be subject to the same administrative law challenges that defeated the FTC rule. Employers who rely heavily on non-compete agreements as part of their competitive strategy should plan for a continued legislative push and consider whether their business interests can be adequately protected through narrower tools like non-solicitation agreements, trade secret protections under the Defend Trade Secrets Act (18 U.S.C. § 1836 et seq.), and confidentiality agreements.

Contact the FTC Enforcement Defense Attorneys At Revision Legal

For more information, contact the experienced FTC Enforcement Defense Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.