The Federal Trade Commission (“FTC”) has filed an appeal of the Texas ruling that halted enforcement of the proposed rule banning noncompete agreements (the “Rule”). The Rule, which was set to go into effect last month, has been halted nationwide since August 20, 2024. For more information on the Rule and its effects, see our previous KEW Tip, Last Minute Ruling Saves Noncompetes.

In August, a Texas federal court decided a challenge to the proposed Rule in Ryan LLC, et al. v. Federal Trade Commission, in which a Texas-based accounting firm argued that the FTC had exceeded its statutory rule-making authority. The court agreed, ultimately halting enforcement of the Rule throughout the country. On October 18, 2024, the FTC filed its expected notice of appeal, beginning the process of review by the U.S. Court of Appeals for the Fifth Circuit. The timeline for this review remains to be seen, as do the specific arguments by each side. If the FTC succeeds, the Rule could be reinstated and go into effect as intended.

This appeal comes less than a month after another appeal by the FTC, challenging a preliminary decision by a federal court in Florida which similarly halted the Rule. This preliminary decision in Properties of the Villages, Inc v. Federal Trade Commission only halted enforcement of the Rule against the involved party, but it signaled that the Florida court’s final decision could likely come down against the FTC. The FTC appealed to the U.S. Court of Appeals for the Eleventh Circuit, which will review the preliminary decision before sending the case back to the lower court for final adjudication. If the Fifth and Eleven Circuits issue conflicting decisions, this could result in a circuit split, increasing the likelihood that the Supreme Court would step in to settle the conflict.

For now, the Rule remains halted nationwide, and will remain halted in the immediate future unless the Fifth Circuit issues a stay of the Texas federal court’s decision. Otherwise, business owners and employers must wait until the Fifth Circuit reaches a final decision on the FTC’s rule-making authority, which will determine the future of noncompete agreements. This timeline is uncertain, but will likely take months as Ryan, LLC and the FTC prepare to relitigate their case.

If you have a business and have any employees or independent contractors, discussing how the Rule and current Wisconsin law may affect your business is a smart next step. Contact one of the Kramer, Elkins & Watt, LLC attorneys by calling 608-709-7115 or emailing info@kewlaw.com.