Fate of FTC noncompete rule will be decided before July 4

The case brought by Ryan LLC challenging the FTC’s rule is moving quickly — but not as quickly as Ryan would like.

The good news is that we will know the fate of the FTC’s noncompete rule shortly!

On May 1, Ryan filed a Motion for Stay of Effective Date and Preliminary Injunction and simultaneously sought expedited briefing. Naturally, the Federal Trade Commission opposed.

Yesterday, May 7, the court denied Ryan’s motion and set a briefing schedule in accordance with the Northern District of Texas’ Civil Local Rules.

Specifically, the court ordered the following schedule:

  • May 22, 2024: FTC’s deadline to file an opposition to Ryan’s motion for a stay and preliminary injunction
  • June 5, 2024: Ryan’s deadline to file a reply
  • June 6, 2024: Court to let parties know if a hearing is warranted
  • June 17, 2024: Hearing — if one is needed
  • July 3, 2024: Court to issue a decision on the merits of the motion

Although the briefing schedule is not expedited, we will know the fate of the FTC’s noncompete rule by July 3.

Stay tuned!

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Steps to take now

Want more background on the rule and steps to take now? Take a look at FTC bans noncompetes: How will you protect your company’s information and keep your customers?

Key at this point is to be thinking about the following:

  • Reviewing and updating agreements and policies to ensure compliance with all of the new state-law developments. This includes, in particular, noncompetes, broad confidentiality agreements, and other agreements in the crosshairs (including no-recruit agreements, nonsolicitation agreements, anti-moonlighting provisions, and training repayment agreements), as well as internal policies that my be treated like impermissible restrictions on employee competition.
  • Reviewing and updating procedures (including the use of data loss prevention software) for protecting trade secrets, other confidential information, and goodwill (see trade secret protection program primer and checklist).
  • Using supplemental agreements and approaches to mitigate the impact of the tightening restrictive covenant laws. For example:
    • Notice provisions (“true” garden leave clauses) may, to the extent enforceable, offer meaningful protection for a short term. Even the FTC’s new Rule acknowledges that these agreements fall outside the scope of the Rule.
    • Springing noncompetes (a court-ordered noncompete as a remedy for a violation of other restrictive covenants or obligations) may create both a deterrence effect and provide a partial remedy for wrongdoing that is discovered early enough. This is a tool created years ago for a client who did not want to use a noncompete, but was worried about the impact of employees violating the other restrictive covenants. It has since been incorporated into Massachusetts noncompete law (MNAA, G.L. c. 149, § 24L(c)).
  • Emphasizing training. Never lose sight of one of the easies and most effective tools you have is to educate and train employees, especially at onboarding and off-boarding, and with special attention to employees working remotely.