The Federal Trade Commission on April 23 approved a Final Rule banning almost all worker noncompete clauses (noncompete rule). Absent a court entering a nationwide injunction or vacating the rule, it is set to go into effect on September 4. Several plaintiffs have brought complaints in federal court challenging the noncompete rule's validity. Two federal district courts have issued conflicting preliminary rulings and anticipate issuing final decisions before the noncompete rule’s effective date. A third lawsuit is under way, but it is unclear if the court will reach a decision before September 4.
Below are summaries of the court cases:
Ryan v. FTC
On July 3, 2024, the US District Court for the Northern District of Texas granted the plaintiffs’ preliminary injunction motions (see our July 8, 2024 LawFlash), halting the noncompete rule for the plaintiffs in this case. The court found that the Federal Trade Commission (FTC) likely exceeded its statutory authority and acted arbitrarily and capriciously. This injunction is limited to the plaintiffs in the Ryan case and stays the noncompete rule’s effective date only for them.
On July 10, the plaintiff and plaintiff-intervenors (including the US Chamber of Commerce) filed a motion for limited reconsideration asking the court to expand the scope of relief in its preliminary injunction. The court denied that motion on July 11, concluding that the plaintiff and plaintiff-intervenors had not shown themselves entitled to the respective relief requested. The court previously indicated it will enter its merits disposition on the parties’ motions for summary judgment by August 30, 2024, prior to the noncompete rule’s effective date of September 4, 2024.
ATS Tree Services LLC v. FTC
On July 23, 2024, the US District Court for the Eastern District of Pennsylvania denied the plaintiff’s motion for a preliminary injunction. The court ruled that the FTC acted within its authority under the FTC Act to promulgate substantive unfair methods of competition rules. As a result, according to the Pennsylvania court, the FTC has the authority to enforce the noncompete rule.
Properties of the Villages Inc. v. FTC
On July 2, 2024, the plaintiff filed a motion for preliminary injunction in the US District Court for the Middle District of Florida, requesting a stay of the noncompete rule’s effective date. The FTC filed its opposition on July 25, 2024. The court allowed several financial services trade associations and other amici curiae to file amicus briefs. The court set a hearing on the plaintiff’s motion on August 14.
All three cases are still pending final adjudications. Several scenarios could unfold:
Litigation over the noncompete rule is active and ongoing, with potential for significant changes before and after the rule’s effective date of September 4, 2024. In the meantime, employers should prepare for various outcomes, including by:
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: