Absent a nationwide injunction, the FTC’s noncompete rule will go into effect on September 4, 2024.
Not surprisingly, parties facing a motion for a temporary restraining order or preliminary injunction have already begun arguing that the FTC’s noncompete rule undermines the plaintiff’s ability to establish a likelihood of success on the merits (a necessary showing to obtain a TRO or preliminary injunction).
The first decision of which I am aware finding that argument persuasive is Conventus Orthopaedics Incorporated v. Fusion Orthopedics USA LLC (D. Ariz Aug. 1, 2024).
Although the court denied the TRO for multiple reasons, its discussion of the FTC’s rule was as follows:
Defendants first say the non-compete covenants are unenforceable because the Federal Trade Commission (“FTC”) recently promulgated a rule that bans the use of non-compete restrictions that goes into effect on September 4, 2024 (the “Rule”). 16 C.F.R. §§ 910, 912 (2024); 89 Fed. Reg. 38342 (May 7, 2024) . . . . However, the FTC explained that existing non-competes can remain in force for senior executives, while existing noncompetes with other workers are not enforceable after the effective date. 89 Fed. Reg 38342. The Rule defines senior executives as workers who were in policy-making position and made a certain minimum compensation. 16 C.F.R. § 910.1.
Plaintiff conceded at the TRO Hearing that Cracraft and DoBosh are not senior executives for the purpose of the Rule and so their non-compete covenants will be voided upon the Rule’s September 4, 2024, effective date. . . . However, Plaintiff further maintained the Rule does not bar its claims because it is not yet certain that the Rule will go into effect. . . . The Court disagrees. As of now, no federal court or court with jurisdiction over this case has issued an injunction against the Rule. The prospective Rule thus undermines Plaintiff’s ability to show likelihood of success on the merits of its breach of non-compete covenant claim.
Interestingly, the court did not discuss the other exception to the FTC’s noncompete rule:
Existing causes of action. The requirements of this part 910 do not apply where a cause of action related to a non-compete clause accrued prior to the effective date.
“Part 910” is the noncompete rule.
Presumably, the plaintiff did not argue this exception, so, it’s unclear how, if at all, it would have impacted the court’s analysis.
Regardless, it’s safe to say that parties should expect to see more of these arguments during the next month.
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Planning for the FTC’s noncompete rule
Given the uncertainty surrounding the rule and the ongoing legal challenges, I will be hosting a roundtable discussion on Wednesday, August 7, from 4:00 to 6:00 ET. The discussion will focus on the rule and strategies for companies as they plan for the upcoming final decision in Ryan, LLC v. FTC and the anticipated preliminary injunction ruling in Properties of the Villages, Inc. v. FTC.
The roundtable will follow a format similar to the brainstorming session we held back in November, where lawyers from around the country wrestled with California’s new noncompete laws.
If you are interested in participating or observing, please contact me (Russell Beck) and my paralegal, Erika Hahn, to let us know.
Please note that attendance is limited. However, we plan to record the program and make it available afterward. The advantage to attending in-person is that you will be able to submit questions in the chat.