BREAKING: FTC Non-Compete Ban BLOCKED Nationwide
On August 20, 2024, a Texas federal judge issued a nationwide injunction blocking the implementation the Federal Trade Commission (FTC)'s final rule that, as reported in MIJB's April Client Alert, effectively bans the use of non-compete agreements as a term or condition of employment ("Final Rule"). The Final Rule was set to take effect on September 4, 2024.
Several entities, including the Chamber of Commerce, initiated litigation in Florida, Pennsylvania and Texas federal courts seeking to block the Final Rule from going into effect.[1] Judge Ada Brown of the United States District Court for the Northern District of Texas is the first to issue a decision that provides relief to employers nationwide.[2]
Judge Brown previously opined in a July 3, 2024 decision that the Final Rule exceeded the FTC’s statutory authority. However, she only granted preliminary relief to the specific plaintiffs named in the lawsuit at that time. Now, in her August 20th decision, Judge Brown granted a motion for summary judgment filed by the Chamber of Commerce and other plaintiffs, and she denied the FTC's own motion for summary judgment seeking relief in its favor. In so ruling, Judge Brown reasoned that the FTC lacks statutory authority to promulgate substantive rules concerning unfair methods of competition, and she further found that the Final Rule itself is arbitrary and capricious. Thus, the Final Rule was set aside as an unlawful agency action. This means the Final Rule will not be enforced or otherwise take effect on September 4, 2024 or thereafter.
What's Next?
The FTC may appeal the Court’s decision. In the meantime, the decision does not prevent the FTC from addressing overly restrictive non-compete agreements through case-by-case enforcement actions. Given the varying opinions issued by the Florida, Pennsylvania and Texas federal courts, it is probable that the Final Rule will be reviewed by the U.S. Courts of Appeals and, ultimately, the Supreme Court of the United States. Until then, non-compete agreements will remain enforceable, subject to individual state restrictions.[3] Employers should nonetheless identify existing employment agreements that contain non-compete clauses and explore the development of more tailored agreements to protect legitimate business interests in light of the uncertain future of non-compete agreements.
[1] Ryan LLC v. FTC, Civil Action No. 3:24-CV-00986 (N.D. Tex. July 3, 2024) (granting preliminary injunction only as to particular plaintiffs); ATS Tree Servs., LLC v. FTC, Civil Action No. 24-1743 (E.D. Pa. July 23, 2024) (denying preliminary injunction); Properties of the Villages, Inc. v. FTC, Civil Action No. 5:24-CV-316 (M.D. Fl. Aug. 15, 2024) (granting preliminary injunction only as to particular plaintiff).
[2] The full August 20th decision can be found at Ryan LLC v. FTC, Civil Action No. 3:24-CV-00986 (N.D. Tex. Aug. 20, 2024).
[3] For example, Pennsylvania's Fair Contracting for Health Care Practitioners Act limits the enforceability of non-compete agreements against certain health care practitioners, effective January 1, 2025.
If you have any questions or concerns regarding the nationwide injunction, the Final Rule or other legislation regarding non-compete agreements, please contact the MacDonald, Illig, Jones & Britton LLP Labor & Employment team.
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