If you’re reading this, you probably know all too well the uncertainty created by the two conflicting decisions concerning the validity of the FTC’s noncompete rule purporting to ban noncompetes nationally.
If not, here’s a quick summary…
On April 23, FTC issued a rule purporting to ban employee noncompetes nationwide.
The rule was immediately challenged in multiple cases.
The first cases to challenge the rule was Ryan, LLC v. FTC, filed in the federal court in Texas on the same day the FTC announced its noncompete rule. On July 3, 2024, the judge in that case issued the first decision on the validity of the rule. In that decision, the court found that the rule is invalid and preliminarily enjoined the FTC from enforcing it against the plaintiffs, but did not prevent the FTC from enforcing it against anyone other than the parties in that action. That decision meant that the plaintiffs in that case could assume that they would be free to enforce a noncompete with their employees as though the rule did not exist. The impact on the rest of the companies in the country was uncertain. How could a rule be an unlawful ultra vires act by the FTC, but still be enforceable by the FTC against non-parties to the lawsuit simply because they didn’t participate in the lawsuit?
The second decision was in ATS Tree Services, LLC v. FTC in the federal court in Pennsylvania. On July 23, 2024, the court in that case issued a decision refusing to invalidate the ban and finding that the FTC’s rule is likely a valid exercise of the FTC’s rulemaking authority. That decision, in contrast to the other, meant that companies in Pennsylvania (and potentially elsewhere) should assume that they will likely have to comply with the rule and not be free to enforce their noncompetes with their employees.
No other court has ruled yet, though there is another challenge to the rule, that one pending in the federal court in Florida in Properties of the Villages, Inc. v. FTC. The court in that case will likely issue its decision on the plaintiff’s motion for a preliminary injunction staying enforcement of the rule in the next few weeks.
Finally, the judge in the Ryan, LLC v. FTC case indicated that she will issue her final decision on August 30. The smart money is on the judge ruling the same way in her final decision as she ruled in her preliminary injunction decision and determining that the rule is invalid. But it is far from clear if she will vacate the rule in its entirety and prevent the FTC from enforcing it against anyone, or if she will limit the relief to the parties in the action, as she did before. And if she limits relief to the parties, an open question is whether she will include the members of the U.S. Chamber of Commerce and other party associations within the scope of her order. And if she does include them, will they need to be publicly identified?
In short, absent a ruling by a court vacating the noncompete rule with nationwide effect, companies will be in a quandary, facing conflicting caselaw in different courts. Can they ignore the rule? Can they partially comply with the rule? Should they sue the FTC? When will there be a final, nationwide ruling from the courts? What will happen to noncompetes that are deemed unenforceable under the rule on September 4, if the rule is subsequently vacated (whether by the Supreme Court or elsewhere)?
There are many open questions.
Roundtable of national experts discussing options
Given the uncertainty and the limited time companies have left to comply with the rule, we will be hosting a roundtable to discuss strategies for companies to address the impact of rule and the current uncertainty. We are scheduled to have over 70 leading restrictive covenant, trade secret, and employee mobility lawyers from around the country to participate in the brainstorming.
The roundtable will take place on Wednesday, August 7, from 4:00 to 6:00 ET via Zoom. It 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.