As we discussed in our July 16, 2024 bulletin update, a Texas judge issued an opinion blocking the Federal Trade Commission’s (“FTC”) Rule which had been set to take effect September 4, 2024 banning most employment non-compete agreements. That decision limited the injunction to the plaintiffs filing suit in Ryan, LLC v. FTC, No. 3:24-CV-00986 (N.D. Tex.). However, on August 20, 2024, that court chose to issue a nationwide ban blocking the FTC from implementing the Rule.
Back in April, we first reported that the FTC issued a regulation (the “Rule”) that would have barred the enforcement of existing non-compete agreements in all but a handful of cases involving highly compensated senior executives. The Rule also prohibited nearly all new non-compete agreements after September 4, 2024.
The Rule has been subject to various legal challenges since its announcement with mixed results. In addition to the nationwide ban just issued in Ryan, a Florida Court followed the example of its Texas counterpart, issuing a preliminary injunction but only as to the parties before the court. See Properties of the Villages, Inc. v. FTC (No. 24-cv-316, M.D. FL.).
However, on July 23, 2024, a Pennsylvania Court issued a directly contrary decision, finding the Rule was within the FTC’s authority and consistent with the FTC’s Congressional mandate to prevent unfair competition practices. See ATS Tree Services, LLC v. Federal Trade Commission, No. 2:24-cv-01743 (E.D. Pa.).
While employers were previously left in a dilemma due to competing decisions, the August 20, 2024 opinion applies nationwide. In its opinion, the Texas Court made clear that it “sets aside the Non-Compete Rule,” finding that the FTC exceeded its statutory authority when it adopted the Rule. More specifically, the Texas Court found the Rule was arbitrary and capricious. What this means for employers is that for now, non-compete agreements with employees are not off limits, provided they comply with applicable state and local law.
As a federal government agency, the FTC has 60 days, or until Oct. 19, 2024, to appeal the decision to the U.S. Court of Appeals for the Fifth Circuit. Not surprisingly, we anticipate the FTC will appeal this decision. Nevertheless, given the heightened scrutiny surrounding non-compete agreements and the proliferation of new state statutes and court decisions regarding non-compete agreements, employers are encouraged to review their non-compete agreements with employment counsel to ensure they meet the ever changing regulatory and judicial requirements.
For more information or any questions, please contact Norman Finkel at [email protected] or Marc Pawlus at [email protected], or call (312) 648-2300.
