Following a July 3rd Texas federal District Court decision, the Federal Trade Commission’s (FTC) near total ban on non-compete agreements set to take effect September 4, 2024, is in question. In Ryan, LLC v. Federal Trade Commission, the court only blocked the ban for the parties involved in the case, declining to impose a nationwide injunction. The court intends to issue a plenary decision on the merits by August 30. This decision should determine the extent of the injunction, potentially preventing the FTC ban from taking effect entirely. This decision will have a massive impact on employers and employees. According to the FTC, roughly one in five American workers (approximately 30 million) are bound by non-compete agreements.
What is the FTC’s new rule?
- Existing non-competes for the vast majority of workers will no longer be enforceable; and
- Employers may not enter into or enforce any new non-competes after the effective date.
- By the effective date, employers must notify current and former employees who signed a non-compete agreement that the agreement will not be enforced after the effective date.
- Exceptions exist for existing litigation, for highly paid decision-making executives, for those who sell their ownership in a business, for bona fide sales of business, and for most non-profits.
Pending Cases
The FTC was sued shortly after approving the new rule by Ryan LLC, a Texas based tax service and software provider, and separately by the US Chamber of Commerce and other business groups.
The court concluded the FTC likely lacked the authority to issue the ban. Despite this, the court limited their injunction to parties associated with the case; declining to issue a national injunction. The decision has been praised by the US Chamber of Commerce, but the FTC stands firm.
Interestingly, the federal District Court for the Eastern District of Pennsylvania is facing a similar case, ATS Tree Services, LLC v. Federal Trade Commission. A preliminary injunction motion is currently pending. A decision is expected by July 23, 2024.
What’s next?
As of now the ultimate result is uncertain, leaving employers in limbo. This will likely continue until one of these cases is not only decided but all the appeals are resolved. This will likely take us to the next Administration and that may further impact how this case is resolved.
Employers and employees should keep an eye on upcoming court decisions to determine if their non-compete agreements are enforceable or not.
Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560
