After Ryan LLC: The Federal Noncompete Vacuum and the State-Law Patchwork That Replaced It

The Federal Trade Commission's 2024 noncompete rule would have created the first uniform federal prohibition on most post-employment noncompete clauses. A federal court vacated it in August 2024. The FTC dropped its appeals in September 2025. The result is a clean regulatory gap: no federal floor, no uniform standard, and a fragmented 50-jurisdiction patchwork that employers and workers must now navigate on their own.

The gap is worth understanding precisely because of how it formed. The FTC did not simply lose a policy argument — it was told, as a matter of law, that it likely lacked the authority to issue the rule in the first place. That framing has implications far beyond noncompetes. It reflects the post-Loper Bright landscape in which agencies can no longer rely on judicial deference to validate broad interpretations of their statutory authority.

What the 2024 Rule Proposed

The FTC's Final Noncompete Clause Rule was published at 89 FR 38342 (May 7, 2024) and codified at 16 CFR Part 910. The rule would have imposed a near-categorical prohibition on employers entering into, enforcing, or representing that workers are subject to a noncompete clause. It defined "noncompete clause" broadly to include any term that prohibits a worker from or penalizes a worker for seeking or accepting work with a different employer, or operating a business, after the conclusion of the employment relationship.

What the Court Said

Ryan LLC, a Texas-based tax services company, filed suit in the Northern District of Texas within days of the rule's publication. The core challenge was straightforward: the FTC lacks substantive rulemaking authority to define and prohibit unfair methods of competition across entire categories of conduct. In the alternative, the challengers argued that even if such authority existed, the noncompete rule was arbitrary and capricious under the Administrative Procedure Act because the agency failed meaningfully to consider less restrictive alternatives.

Judge Ada Brown ruled for the plaintiffs in Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986-E (N.D. Tex. Aug. 20, 2024), setting aside the rule nationwide. The court held that the FTC Act's unfair-methods-of-competition prohibition in Section 5 does not grant the Commission legislative rulemaking authority of the type the noncompete rule would require. The court also found the rule arbitrary and capricious on the independent ground that the FTC dismissed alternatives to a blanket ban without adequate explanation. The nationwide vacatur took effect before the rule's compliance date.

The FTC Abandoned Its Appeals

The FTC initially appealed Ryan LLC to the Fifth Circuit. In September 2025, the Commission filed to accede to the vacatur, voluntarily dismissing its appeals and formally abandoning the effort to revive the 2024 rule. 16 CFR Part 910, as promulgated, has no legal force.

That abandonment is the second important legal event in this gap story. It means that neither judicial relief nor further administrative proceedings are pending that might revive a federal noncompete prohibition in the near term. The gap that exists today is durable unless Congress acts or the FTC finds a new statutory theory — which would face the same post-Loper Bright scrutiny.

What Fills the Gap: State Law

Without a federal floor, noncompete enforceability reverts entirely to state law. The resulting landscape is fragmented:

Practical Implications for Multi-State Employers

The practical consequence of the regulatory vacuum is that multi-state employers must maintain jurisdiction-specific noncompete policies. A template agreement executed in Delaware, governed by Delaware law, with employees working remotely in California will be tested on California law — and California courts routinely refuse to enforce noncompetes regardless of choice-of-law language (the California Court of Appeal's holding in Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881 (1998), established this extraterritorial reach for California employees; this is California appellate authority, not a U.S. Supreme Court holding).

The absence of a federal rule also affects the sophistication of the market. Larger employers with robust legal teams can maintain jurisdiction-specific agreements and counseling. Smaller employers and individual workers often lack the resources to navigate a 50-state patchwork. That asymmetry is one of the harms the 2024 FTC rule was designed to address — and it persists in the vacuum left by the vacatur.

For legal and human resources teams, the actionable takeaway is to audit existing noncompete agreements against the law of each state where the agreement may be enforced. Choice-of-law clauses are not reliable shields. The jurisdictional baseline should be the state where the employee works, not the state on the contract's signature page.

Law Gaps tracks regulatory gaps that form when agency rulemakings fail — through legal challenge, political reversal, or statutory limits on authority. The noncompete vacuum is one of the clearest current examples of a gap produced not by congressional silence, but by the outer limits of agency power.