UPDATE July 23, 2024: A federal judge for the Eastern District of Pennsylvania has refused to issue a preliminary injunction that would have blocked implementation of the FTC’s non-compete ban while a lawsuit over the ban is pending. U.S. District Judge Kelley B. Hodge found that the FTC has statutory authority to issue substantive rules to prevent unfair methods of competition, that the plaintiff, ATS Tree Services, Inc., was unlikely to prevail on its claim that the FTC lacked statutory authority to issue the ban, and that plaintiff failed to show that the ban would result in irreparable harm to the company. This means that, as of now, the non-compete ban is still scheduled to become effective September 4, 2024 except as to the plaintiff and intervenor plaintiffs in the Ryan LLC lawsuit. As stated below, however, the Texas federal court is expected to issue a final decision by the end of August, and because of the shifting legal landscape, you should speak with an employment law attorney to understand your rights and obligations regarding your non-compete.
On April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 to ban non-compete agreements between workers and their employers, with limited exceptions. The rule is set to take effect on September 4, 2024, marking a historic victory for workers’ rights. However, recent legal challenges have put the ban’s future in jeopardy.
Here’s what employees need to know about the current state of the FTC’s non-compete ban.
What Does the FTC’s Non-Compete Rule Do?
The FTC’s final rule broadly prohibits the enforcement of most non-compete agreements, which generally prevent employees from leaving a company to work for a competitor within a certain timeframe.
The rule does not apply to those working in industries not covered by the Federal Trade Commission Act, such as certain banks, savings and loan institutions, federal credit unions, non-profit organizations, and common carriers. This is merely a general list; you should consult with an attorney about whether your employer is covered by the FTC Act or not.
For covered industries, the rule states that new non-competes are unenforceable, and any existing non-competes are void except those entered into by certain senior executives. The rule also includes an exception for non-competes that are signed as part of a bona fide sale of a business.
The ban was widely seen as a major step forward for workers, promoting greater economic mobility and reducing restrictions on employees seeking better opportunities. The rule was particularly celebrated for its potential to enhance worker freedom and foster greater innovation and competition in the job market.
Lawsuits Challenging the FTC’s Rule Were Filed Almost Immediately
Just hours after the FTC voted to enact the rule, global tax preparation company Ryan LLC filed a federal lawsuit in the Northern District of Texas seeking to block its enforcement. The lawsuit argued that Congress did not give the FTC the statutory authority to issue such a rule, and that the rule was an “arbitrary and capricious” overreach of the agency’s power.
A coalition of business advocacy groups, including the U.S. Chamber of Commerce, intervened to join the plaintiff’s lawsuit, and, together with Ryan LLC, requested a preliminary injunction to halt the rule’s implementation pending the outcome of the litigation.
Other federal lawsuits have since been filed by employers seeking to halt the non-compete ban, including a lawsuit filed by ATS Tree Services, LLC in the Eastern District of Pennsylvania and a lawsuit filed by Properties of the Villages, Inc. in the Middle District of Florida.
Employment lawyers are closely watching these pending court cases to see whether the rule is upheld or blocked. Whether and to what extent these decisions impact employees in these jurisdictions will depend on the substance of the rulings. It is also possible that more lawsuits will be filed challenging the rule in other jurisdictions.
Texas Federal Court Grants a Preliminary Injunction
On July 3, the Texas federal court granted a preliminary injunction, temporarily blocking the enforcement of the FTC’s rule only with respect to the plaintiffs and intervening plaintiffs. U.S. District Judge Ada E. Brown found that the plaintiff and plaintiff-intervenors were likely to succeed on the merits of their arguments and therefore met the requirements for a preliminary injunction.
However, the judge declined to issue a nationwide injunction or extend it to businesses that are members of the intervening plaintiff advocacy groups. The plaintiff then asked the Court to reconsider the scope of the preliminary injunction, but that motion was denied on July 11. As a result, currently, the rule is still scheduled to take effect on September 4, 2024, except for the plaintiffs in the Texas action.
The Texas court is expected to issue a final ruling by August 30. A decision on a preliminary injunction in the Pennsylvania case is expected by July 23.
Non-Competes Are Still Banned in Certain States
While the federal rule is at the center of lawsuits, state lawmakers have taken their own actions to address non-compete agreements.
Four states have passed full bans on non-competes:
- California
- Oklahoma
- North Dakota
- Minnesota
Many other states have passed laws limiting the enforceability of non-compete clauses. More states may introduce similar measures in the wake of the FTC’s rule, reflecting a growing trend to curb these agreements.
What Should Employees Do?
Given the rapidly changing legal landscape, it’s best to consult a qualified employment attorney if you have any questions about your non-compete—especially before accepting a job offer or leaving a company.
A labor and employment attorney with knowledge of federal, state, and local laws can evaluate your specific workplace situation and advise you whether a contract restricts you from going to work for a competitor, and for how long.
In addition to reviewing your non-compete, an employment lawyer can review other agreements, such as compensation or equity agreements, that may impact your rights with respect to your employer. Your lawyer may also be able to negotiate the terms of your non-compete before you accept a job offer.
Outten & Golden is the largest U.S. law firm focused exclusively on representing workers at all levels. Our firm has long advocated for a comprehensive ban on non-compete agreements both nationally and in New York. If you have questions about your non-compete, contact us so we can assist you.
