08/21/2024 | Press release | Distributed by Public on 08/21/2024 15:07
Antitrust and Competition Law Alert® | August 21, 2024
Authors: Bernard (Barry) A. Nigro Jr., Nathaniel L. Asker, Aleksandr B. Livshits, Peter L. Simmons, Jeffrey Ross, Nathaniel Bronstein, Lexi Michaud
A federal district court in Texas has issued an injunction barring on a nationwide basis the FTC's proposed rule that would have banned most employee non-compete agreements.[1] The court concluded that the FTC lacks the statutory authority to issue the rule and that the rule is arbitrary and capricious.[2] As a result, the FTC's non-compete rule will not take effect on the scheduled effective date of September 4, 2024.
This ruling provides significant relief for employers who rely on reasonably tailored non-compete agreements to protect their legitimate business interests. However, the FTC has already stated that the agency is "seriously considering" appealing the decision,[4] and the White House announced that it continues to support the FTC's ban on non-compete agreements.[5] The FTC further stated that the Texas court's decision "does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions."[6] An appeal is indeed likely, as in separate cases challenging the non-compete rule, federal judges in Pennsylvania and Florida suggested that the FTC does have substantive rulemaking authority.[7]
As a result, and in light of state law restrictions on employee non-competes, employers should continue to monitor developments in these cases and consult with legal counsel regarding their non-compete agreements and overall strategy for retaining and protecting employees, goodwill, and trade secrets.
[1]See Mem. Op. and Order, Ryan LLC, v. Federal Trade Comm'n, Civil Action No. 3:24-CV-00986-E (hereinafter the "Ryan Summary Judgment Order").
[2] For information on the court's preliminary ruling, see our client alert "Court Issues Preliminary Ruling that FTC Lacks Authority to Issue Non-Compete Ban" (July 11, 2024).
[3] Ryan Summary Judgement Order at 24.
[4] The Hill,"Federal Judge Blocks FTC Noncompete Ban" (August 20, 2024) (hereinafter "The Hill, Judge Blocks Noncompete Ban").
[5] MLex, "White House Says It Continues to Support FTC's Ban on Noncompete Clauses In Worker Contracts" (August 21, 2024).
[6] The Hill, Judge Blocks Noncompete Ban.
[7]SeeATS Tree Services, LLC v. Federal Trade Commission, et al., Civil Action No. 2:24-cv-01743-KBH (Pennsylvania) and Properties of the Villages, Inc. v. Federal Trade Commission, Civil Action No. 5:24-cv-316-TJC-PRL (Florida).
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