In April 2024, the Federal Trade Commission (FTC) announced a new rule banning most noncompete agreements. The scope of the rule was broad, covering nearly all such agreements. As anticipated, the rule faced numerous legal challenges across various courts. Just as it was about to take effect on September 4, 2024, a federal court in Texas issued a nationwide injunction, preventing its implementation.
The case, Ryan LLC v. Federal Trade Commission, was brought by the Texas-based tax service firm Ryan LLC, the U.S. Chamber of Commerce, and other business organizations. They argued that the FTC’s noncompete rule violated the federal Administrative Procedure Act (APA), contending that the agency had exceeded its statutory authority and that the rule was arbitrary and capricious.
After reviewing the motions, legal briefs, and relevant law, Judge Ada Brown of the Northern District of Texas ruled in favor of the plaintiffs. She based her decision on two key points. First, she determined that the FTC lacked the statutory authority to implement such a rule, noting that Congress only allows the agency to issue procedural rules addressing unfair competition, not substantive rules. Second, she found the FTC’s rule to be capricious, citing several reasons: its excessive scope, the lack of reasonable justification, its “one-size-fits-all” approach, failure to account for the potential benefits of noncompete agreements, and the absence of consideration for alternatives.
While this ruling is likely a relief for employers, it is important to note that the FTC may appeal the decision. However, legal experts believe the chances of overturning the ruling are slim due to various technical legal issues. For the time being, with the FTC’s rule effectively blocked, employers will continue to navigate state-specific regulations regarding noncompete agreements.
In Michigan, for example, noncompete clauses are permitted, but they are restricted by law to limitations that are reasonably necessary to protect an employer’s legitimate business interests. This means that courts will continue to evaluate the enforceability of noncompete provisions on a case-by-case basis. Given the widespread support for restricting noncompetes, particularly among employees, it is possible that Michigan and other states may further limit or even ban such agreements in the future.
For a better understanding of how Michigan’s noncompete laws affect your business or to have your employment law questions answered, please contact Jennifer L. Gross at [email protected], or any of the attorneys at Cooper & Riesterer, PLC.
