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 be a nationwide injunction. If granted, this motion would extend the court’s decision beyond the initial parties in the case, effectively banning the Rule nationwide.
A separate pending challenge in the U.S. District Court for the Eastern District of Pennsylvania (ATS Tree Services, LLC v. Federal Trade Commission) could further impact the Rule. Oral arguments are scheduled for July 10th . The judge presiding over that case has indicated that a decision will be issued by July 23, 2024—so stay tuned.
Next Steps for Employers: The FTC proposed ban is facing 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.
