By Patrick O’Brien, JD, General Counsel, American Med Spa Association (AmSpa)

The Federal Trade Commission’s (FTC’s) rule that would effectively ban non-competes in most employment circumstances has been blocked from taking effect. The rule was adopted in April 2024 and was originally scheduled to take effect on September 4, 2024. AmSpa previously covered the rule’s adoption and some of the challenges it faced here and here. In July, a judge in Philadelphia upheld the FTC rule in a different case as we covered here. However, the current case was brought in the federal court in the Northern District of Texas by Plaintiffs Ryan LLC and the U.S. Chamber of Commerce against the FTC. The judge had previously granted the plaintiffs a temporary stay, blocking enforcement of the rule against the plaintiffs. This week, the judge granted the plaintiff’s motion for summary judgment, blocking the rule from taking effect nationwide.

In the judge’s ruling striking down the FTC’s rule, she cited several elements that influenced her decision. The judge determined that the FTC, which enforces antitrust laws, had not been granted the authority to adopt broad rules banning practices it views as “unfair methods of competition,” such as this. The judge continued that even if the FTC did have the authority to adopt such rules, this rule would fail because it was “arbitrary and capricious.” The judge found it “unreasonably overbroad without a reasonable explanation” and that it “fails to establish a rational connection between the facts found and the choice made.” The judge’s ruling implies that a more tailored rule that targeted only harmful types of non-competes may have stood a better chance of being upheld. The judge also referenced the recent Supreme Court decision in Loper Bright Enters. v. Raimondo, which ended the doctrine of giving deference to administrative laws such as this.

What does this ruling mean for non-competes in medical spas? It means that nothing is changing in the near future: Existing non-competes will still be in effect, employers and employees can enter new non-competes, and non-competes can still be enforced under current state rules. The FTC has indicated that it is considering appealing this decision, so there is a possibility that the rule could still go into effect at a future date if it is successful in an appeal. Barring a successful appeal, however, the FTC would need to go through the process of adopting a new rule that would survive judicial scrutiny. The process for the current rule was initiated in 2021 by an executive order; a new rule may not take quite as long as this, but the process is unlikely to be very fast. It is also important to note that even though this national rule is not currently going into effect, many states have acted on their own to limit the scope and effect of non-compete clauses. If it has been a while since your business reviewed its non-compete clauses, now may be a good time to see if they are still compliant with any changes in state law.