Washington, D.C. — Following a decision in the case of Ryan LLC v. FTC yesterday in the US District Court for the Northern District of Texas from Judge Ada Brown, who ruled to “set aside” the Federal Trade Commission’s ban on restrictive noncompete agreements– purportedly on a “nationwide” basis– the American Economic Liberties Project released the following statement.

“Reports of the death of the FTC’s noncompete rule are greatly exaggerated, and the reality is that noncompete agreements still run afoul of multiple state and federal laws,” said Laurel Kilgour, Research Manager at the American Economic Liberties Project. “The upshot for employers in most states is that restricting the freedom of workers to change jobs at will remains legally risky business. The legal uncertainty created by one rogue judge in Texas does not change the fact that many of these agreements will remain illegal with or without the rule. We nevertheless remain confident that the FTC will ultimately succeed in its effort to affirm the rule and its underlying rulemaking authority.”

“This is all part of a well-documented campaign by powerful corporations to hamstring the FTC and antitrust enforcers for doing their jobs,” added Kilgour. “Powerful corporations have the Chamber of Commerce and the Fifth Circuit to attack pro-worker and pro-consumer enforcement. The American people have the FTC, which is why we urge the Commission to appeal this radical ruling and continue to stand up for working families across the country.”

Noncompete agreements are restrictive, one-sided contracts foisted upon workers across industries and income levels, from fast-food workers to doctors— at least 18% of the workforce. The FTC’s rulemaking process took into consideration 26,000 public comments from employers and workers in a wide range of industries from every state, as well as extensive academic studies. The FTC estimated that banning noncompetes nationally would increase workers’ earnings by nearly $400-$488 billion over the next decade and increase new business formation by 2.7%. Banning noncompetes is also overwhelmingly popular across the country, with an Ipsos poll finding that 61% of Americans support the FTC’s rule.

On July 23, Judge Hodge of the Eastern District of Pennsylvania ruled in favor of the FTC and against plaintiffs who sought to challenge the final rule banning noncompete agreements. The court expressly upheld the FTC’s substantive rulemaking authority. Last week, Judge Corrigan of the Western District of Florida ordered a limited injunction of the rule only as to the plaintiffs in that case. In so ruling, Judge Corrigan found that the FTC has substantive rulemaking authority, but that the final rule banning noncompetes presented a “major question” requiring additional Congressional delegation. The Texas federal court is the only federal court that has ruled that the FTC does not have substantive rulemaking authority, presenting a conflict with two other federal courts that is likely to be resolved in the context of an appeal.

In the meantime, four states fully ban noncompete agreements, nine states ban them for all but the highest paid workers, and the vast majority of remaining states impose some restrictions. Some cities, such as New York City, have also started to consider banning noncompetes. Importantly, on the federal level, the FTC retains its enforcement authority under Section 5 of the FTC Act to challenge noncompete agreements in federal district court on a case-by-case basis, and the final rule banning noncompetes may yet be vindicated by higher courts.

In United States v. Texas, 599 U.S. ___ (2023), Justice Gorsuch penned a concurring opinion admonishing judges to err on the side of limiting relief to specific parties– as Florida did above– rather than potentially running afoul of the Constitution by purporting to issue nationwide judicial fiats as Judge Ada Brown just did here. Justice Gorsuch wrote:

• “The temptations a single district judge may face when invited to vacate agency rules are obvious… [V]acatur can stymie the orderly review of important questions, lead to forum shopping, render meaningless rules about joinder and class actions, and facilitate efforts to evade the APA’s normal rulemaking processes. Vacatur can also sweep up nonparties who may not wish to receive the benefit of the court’s decision… More importantly still, universal relief, whether by way of injunction or vacatur, strains our separation of powers. It exaggerates the role of the Judiciary in our constitutional order, allowing individual judges to act more like a legislature by decreeing the rights and duties of people nationwide.”

This case is Ryan LLC v. Federal Trade Commission, N. D. Tex., Case No. 3:24-cv-00986. The Chamber of Commerce separately filed suit in the Eastern District of Texas, Case No. 6:24-cv-00148, which is on hold pending resolution of the Ryan LLC case.

Read the FTC’s Fact Sheet on Noncompete Rulemaking, with instructions for how workers can report violations of the noncompete rule, here, and find state-by-state fact sheets here.

Read Economic Liberties’ guide on how state lawmakers can tackle noncompetes and other restraints on worker mobility here. 

Read Corporations v. The People to learn more about rogue courts attacking federal agencies.

Learn more about Economic Liberties here.

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The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.