On July 3, a Texas judge in the bellwether lawsuit, Ryan, LLC v. The Federal Trade Commission, became the first to weigh in on the legality of the FTC’s non-compete ban that is set to take effect on September 4. As was widely anticipated, the Court concluded that a preliminary injunction was appropriate, and it temporarily enjoined the non-compete ban from going into effect against the named plaintiff/intervenors to the Ryan lawsuit. Less anticipated, the Court declined to issue a nationwide injunction to non-parties—meaning that the FTC’s non-compete ban currently remains set to take effect on September 4 for all employers who are not named parties in the Ryan lawsuit.

In reaching its conclusion, the Court held that the FTC’s rule banning most non-competes is likely unlawful for two reasons: (1) the FTC likely exceeded its statutory authority because it does not have substantive rulemaking authority to craft rules regarding unfair methods of competition; and (2) a categorial ban on nearly all non-competes would likely be arbitrary and capricious because it is overly broad without any reasonable explanation. While these findings are a clear rebuke of the FTC’s actions, the Court expressed doubt about whether it would be appropriate for it to issue a nationwide injunction that would extend to non-parties because such relief is unnecessary to protect the interests of the named parties (which is the focus at the preliminary injunction stage).

The implications of this ruling are going to evolve over the next two months. The Court has ordered the parties to submit a joint status report by July 9 to determine the case’s next steps, and it has committed to issuing a final decision on the merits of the entire lawsuit by August 30. This forthcoming merits-based decision could result in a more expansive nationwide injunction that would extend to non-parties; however, many employers may view this as providing little reprieve in the interim because of the anticipated rulings timing with the looming September 4 effective date and actions needed to prepare for that effective date. For now, employers will need to revisit how they intend to approach the FTC’s Final Rule in the days leading up to September 4. Attention will also likely shift to the parallel lawsuit in Pennsylvania, ATS Tree Services, LLC v. The Federal Trade Commission, which leaves open the possibility of a nationwide injunction still being issued by that Court later this month.

Sean R. Gallagher also contributed to this article.