Legal challenges to the Federal Trade Commission’s (“FTC”) recent rule banning non-compete agreements are heating up just as we are in the heart of this hottest summer on record!
On July 3, 2024, a federal court in Texas issued a (VERY NARROW) preliminary injunction blocking the FTC from enforcing its Non-Compete Rule (the “Rule”), but only against the named plaintiffs in the case. This decision leaves the broader impact of the rule in question, as the court declined to impose a nationwide injunction.
On July 10, 2024, the Plaintiff and Plaintiff-Intervenors filed an expedited motion for reconsideration requesting that the court expand the scope of its preliminary injunction to a nationwide injunction, which the court denied.
UPDATE
On July 24th, 2024, the U.S. District Court for the Eastern District of Pennsylvania (ATS Tree Services, LLC v. Federal Trade Commission) held, on a preliminary basis, that the FTC does have the authority to ban all employee non-compete agreements. The Court further explained that the FTC has the authority to regulate “unfair methods of competition” under Section 6 of the Federal Trade Commission Act.
Since our Alert was published on July 11th, another challenge to the Rule has been filed and is pending before the U.S. District Court for the Middle District of Florida in Properties of the Villages, Inc. v. Federal Trade Commission.
The FTC filed its response to Plaintiff’s motion for preliminary injunction on July 25, 2024, so it is anticipated the court will set a date for oral argument on the motion—so stay tuned for more updates.
Given the high stakes and the Rule’s scheduled implementation on September 4, 2024, the Supreme Court will likely weigh in on the FTC’s authority to implement such a sweeping ban before the Rule goes into effect.
Next Steps for Employers: The FTC proposed ban faces several challenges, and in light of recent Supreme Court decisions, it faces a pretty uphill battle for enforcement. But, the overall climate for non-competes remains challenging. Many states have passed laws limiting their enforcement, and judges remain skeptical of these clauses. Employers should consider alternative strategies to protect confidential and proprietary information—like non-solicit and non-interference agreements.
Check out our previous alert on this topic: Employment Law Alert: FTC Bans Non-Competes Agreements and please reach out if you want to discuss this further.
