Ryan lawsuit halts noncompete rule

A federal court issued a stay and a preliminary injunction against the Federal Trade Commission's noncompete rule after a lawsuit by Ryan, a Dallas-based tax services firm, and the U.S. Chamber of Commerce.

Ryan filed suit in April to block the FTC rule, and last week U.S. District Court Judge Ada Brown of the Northern District of Texas issued a stay and a preliminary injunction against the FTC in response. The decision halts implementation of the rule, which was originally set to take effect on Sept. 4. Judge Brown said she intends to issue a final decision on the merits by Aug. 30, 2024.

Ryan challenged the FTC's authority to issue the rule, claiming it imposed an extraordinary burden on business owners seeking to protect their intellectual property and to retain top talent within the professional services industry. Ryan chairman and CEO G. Brint Ryan called the FTC ban "one of the most outrageous examples of government overreach that I have seen."

Judge Brown said in her ruling, "The court concludes the commission has exceeded its statutory authority in promulgating the Non-Compete Rule, and thus plaintiffs are likely to succeed on the merits." She emphasized, "The role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do."

"The court's decision is an important step toward invalidating a rule that burdens not only Ryan, but also Ryan's clients, and multitudes of employers and employees across America," said Ryan chief legal officer and general counsel John Smith in a statement. "We're grateful that the U.S. Chamber of Commerce and Texas Association of Business joined our case shortly after we filed it. We appreciate the many organizations — which together represent a vast swath of the American economy — that filed briefs supporting Ryan's position."

"This ruling is a big win in the chamber's fight against government micromanagement of business decisions," the Chamber of Commerce's chief counsel Daryl Joseffer said in a statement, according to Bloomberg News. "The FTC's blanket ban on noncompetes is an unlawful power grab that defies the agency's constitutional and statutory authority and sets a dangerous precedent where the government knows better than the markets."

The FTC plans to keep pushing for the rule, which bans noncompete agreements for most workers, but exempts "senior executives" who earn more than $151,164 and are in a "policy-making position."

"The FTC stands by our clear authority, supported by statute and precedent, to issue this rule," Douglas Farrar, a spokesperson for the agency, said in a statement, according to Bloomberg. "We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans' economic liberty."  

Ryan hopes to get the rule stopped altogether, and its legal counsel said the firm will pursue a final decision on the merits that strikes down the FTC's ban.