FTC Files Opening Brief in Fifth Circuit Appeal Defending Noncompete Rule

At a Glance

• On January 2, 2025, the Federal Trade Commission (FTC) filed its opening brief in the Fifth Circuit Court of Appeals regarding the district court summary judgment order in Ryan LLC v. Federal Trade Commission, Civ. Action No. 3:24-CV-00986 (N.D. Tex. Aug. 20, 2024), which universally vacated the FTC’s rule banning post-employment noncompetes (Noncompete Rule).
• Briefing is expected to be completed in February. In the ordinary course, a decision would be expected later this year. However, the incoming administration is expected to revisit the Noncompete Rule and may abandon the appeal or rescind the rule.
• While on appeal, the district court’s order vacating the Noncompete Rule remains in effect — meaning employers do not need to comply with the rule’s notice requirements and, unless prohibited under applicable state law, noncompetes remain enforceable.

Background

In August 2024, the U.S. District Court for the Northern District of Texas issued a summary judgment order holding that the Federal Trade Commission (FTC) rule banning post-employment noncompetes (Noncompete Rule) was “unlawful” and therefore must be “set aside.” In Ryan LLC v. Federal Trade Commission, Civ. Action No. 3:24-CV-00986 (N.D. Tex. Aug. 20, 2024), the court concluded that the FTC exceeded its statutory authority in issuing the Noncompete Rule and further found the Noncompete Rule was arbitrary and capricious. The district court order universally vacated the Noncompete Rule.

Our prior updates have covered the FTC’s proposed and final noncompete rule, as well as developments in the Ryan litigation, including detailed summaries of the district court’s opinions: 

• Ryan Court Blocks FTC Rule Banning Employment Noncompete Agreements on a Limited Basis
• Ryan Court Sets Aside FTC Noncompete Rule, With Nationwide Effect

The Fifth Circuit Appeal

On appeal to the Fifth Circuit, the FTC’s opening brief challenges the district court’s decisions on three issues:

1. Whether the FTC Act empowers the Commission to issue substantive rules defining a practice as an unfair method of competition; 
2. Whether the [Non-Compete] Rule is arbitrary and capricious; and 
3. Whether the district court’s universal vacatur was impermissibly overbroad.

Brief of Appellant at 4, Ryan LLC v. FTC, No. 24-10951 (5th Cir. Jan. 2, 2025), ECF No. 41. 

The FTC seeks to have the district court’s order reversed. Appellees are expected to respond in early February 2025, and briefing is expected to be completed by the end of February. A decision is expected this year.

Takeaway

While the district court order vacating the FTC’s Noncompete Rule remains in effect — that is, noncompetes are still enforceable unless prohibited under applicable state law — the FTC’s appeal seeks to vacate the order and reinstate the Noncompete Rule. Unless the incoming administration abandons the appeal or rescinds the Noncompete Rule, a decision is expected later this year.