Ryan Challenges New Non-Compete Rule Issued by Federal Trade Commission (FTC)

April 23, 2024 at 16:43 PM EDT

Tax Services Firm Leads the Charge to Protect Intellectual Property (IP) and Talent Retention for Professional Services Companies, Filing Suit Against the FTC in Federal Court

Ryan, a leading global tax services and software provider, is challenging a new rule issued by the Federal Trade Commission (FTC) that outlaws non-compete employment agreements. The Firm’s lawsuit in federal court in Texas is the first challenge to the FTC’s lawless action, which imposes an extraordinary burden on businesses seeking to protect their intellectual property (IP) and retain top talent within the professional services industries. The Firm seeks to prevent the immense, undue burdens the FTC’s rule would impose on service-driven companies of every size nationwide.

The FTC’s rule would upend companies’ IP protections and talent development and retention by invalidating millions of employment contracts and nullifying the laws of dozens of states, according to the FTC’s own public estimation. Ryan sought to dissuade the FTC from this action by submitting last spring a 54-page public comment against the FTC’s proposed rule. Ryan explained how non-compete agreements are an important tool for firms to protect their IP and foster innovation. Without them, firms could hire away a competitor’s employees just to gain insights into their competitor’s intellectual property. The FTC’s decision to ban an important tool for protecting IP will inhibit firms from investing in that IP in the first place, resulting in a less innovative economy. The Firm’s complaint, filed in the United States District Court for the Northern District of Texas, contends that the FTC lacks the authority to prohibit non-compete agreements. It also argues that the FTC itself is unconstitutionally structured.

“For more than three decades, Ryan has served as a champion for empowering business leaders to reinvest the tax savings our Firm has recovered to transform their businesses,” said Ryan Chairman and CEO G. Brint Ryan. “Just as Ryan ensures companies pay only the tax they owe, we stand firm in our commitment to serve the rightful interest of every company to retain its proprietary formulas for success taught in good faith to its own employees.”

Among other benefits, non-compete agreements incentivize companies to invest in research and development, empower collaborative work environments, and instill a commitment to aiding personnel growth and development. Non-compete agreements also promote worker training, increasing their earnings, by solving a free-rider problem that inhibits firms from investing in their employees. These arrangements, mutually agreed upon by the employer and employee, enable all parties to maximize their output in an open and dynamic work environment. Innovation fueled by collaboration is critical to the modern economy.

“Upending a long history of evaluating non-compete agreements through case-by-case analysis, the Commission instead has bluntly struck at nearly all existing agreements,” said John Smith, Ryan Chief Legal Officer and General Counsel. “With history, logic, law, and the Constitution on our side, we look forward to righting this wrong by the FTC against employees and employers alike.” Ryan has engaged Gene Scalia, former US Secretary of Labor, and his team at Gibson, Dunn & Crutcher LLP to challenge together the FTC’s new rule.

About Ryan

Ryan, an award-winning global tax services and software provider, is the largest Firm in the world dedicated exclusively to business taxes. With global headquarters in Dallas, Texas, the Firm provides an integrated suite of federal, state, local, and international tax services on a multijurisdictional basis, including tax recovery, consulting, advocacy, compliance, and technology services. Ryan is an 11-time recipient of the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the dynamic myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan’s multidisciplinary team of more than 4,800 professionals and associates serves over 30,000 clients in more than 80 countries, including many of the world’s most prominent Global 5000 companies. More information about Ryan can be found at ryan.com.