As reported in prior Alerts (on January 6, 2023; April 19 and 23, 2024; and 23, 2024; and July 3 and 24, 2024), after initially proposing the rule in January 2023, in April 2024 the Federal Trade Commission (FTC) voted 3-2 to approve a final rule:
- Banning noncompete agreements with virtually all workers 120 days after publication in the Federal Register (i.e., on September 4, 2024);
- Invalidating existing noncompetes with all workers except senior executives; and
- Requiring employers to send a clear and conspicuous notice to affected workers, by the effective date, that the worker's noncompete clause will not and cannot be legally enforced.
Legal challenges to the noncompete ban have, thus far, been unsuccessful in securing an order enjoining, staying and/or invalidating the noncompete ban for all employers. As reported in our July 3, 2024, Alert, the U.S. District Court for the Northern District of Texas in the Ryan lawsuit enjoined the FTC from enforcing its noncompete ban and stayed the ban as to the parties to that lawsuit, but refused to issue a nationwide injunction or stay that would apply to other employers. At this point, the best hope for an order staying, enjoining and/or invalidating the noncompete ban for all covered employers before the noncompete ban is set to take effect on September 4, 2024, is in the Ryan lawsuit, where the court has promised a ruling on the merits by August 30, 2024. Unfortunately, that date (the Friday before Labor Day) provides little comfort for all other covered employers, given that the noncompete ban is set to take effect the following Wednesday, September 4, 2024.
With the clock ticking down to September 4, 2024, other covered employers may also seek injunctions or stays of the noncompete ban. At least one other case has been filed (a lawsuit filed by Properties of the Villages Inc. against the FTC in the U.S. District Court for the Middle District of Florida), but the plaintiff in that case seeks an injunction that would only prevent the FTC from enforcing the noncompete ban against the plaintiff.
What Should Employers Do Now?
Employers should take the following steps well in advance of the scheduled September 4, 2024, effective date, if they have not done so already, in the event that the noncompete ban withstands legal challenge:
- Identify a designated individual or individuals to speak on behalf of the company regarding the rule and develop consistent messaging to workers;
- Work with counsel to review agreements with current and former workers to determine which agreements would fall within the noncompete rule;
- Work with counsel to craft the notice that must be sent to affected workers on or before the effective date; and
- Work with counsel to review agreement forms to assess potential changes to those forms for use after the effective date.
If you have any questions about this Alert, please contact Lawrence H. Pockers, Shannon Hampton Sutherland, Bryan Shapiro, any of the attorneys in our Non-Compete and Trade Secrets Group, Sean P. McConnell, any of the attorneys in our Antitrust and Competition Group, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.