As reported in our prior Alert, on April 23, 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 be, and cannot legally be, enforced.
At least three challenges to the noncompete ban have been filed in federal courts since that time, but none have yet succeeded in halting the ban nationwide. As reported in our recent Alert, on July 3, 2024, in the Ryan lawsuit, the U.S. District Court for the Northern District of Texas 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. On the heels of the decision in Ryan, on July 23, 2024, the U.S. District Court for the Eastern District of Pennsylvania, in ATS Tree Services, LLC v. Federal Trade Commission, et al., denied the plaintiff's motion seeking a nationwide injunction and stay, dealing a further blow to efforts to halt the noncompete ban.
ATS is a 12-employee tree care company based in Bucks County, Pennsylvania. ATS sued the FTC seeking a preliminary injunction to enjoin and stay the noncompete ban. On July 23, 2024, in a decision authored by presiding Judge Kelley B. Hodge, the court denied ATS' motion in its entirety, finding that ATS had failed to establish that it would suffer irreparable harm and failed to establish a reasonable chance or probability of eventually winning its case on the merits.
The ATS court's reasoning in denying the preliminary injunction motion is directly at odds with the reasoning of the Ryan court in granting injunctive relief and a stay (albeit as to the parties in the Ryan suit only). In Ryan, the court held that "the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g)." By contrast, in ATS, the court held that "[t]he plain text of the statute provides no express limitations on the FTC's rulemaking authority and the Court will not read in such limitations."
In the Wake of the Court's Decision, What Comes Next?
In the aftermath of the court's decision in ATS, the noncompete ban remains scheduled to take effect on September 4, 2024, as to all covered employers other than the named plaintiff and plaintiff-intervenors in the Ryan lawsuit.
In Ryan, the plaintiff and plaintiff-intervenors have filed a motion for summary judgment seeking a nationwide injunction and/or stay of the noncompete ban. The Ryan court has indicated it will rule on the parties' motions for summary judgment by no later than 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. The plaintiffs in the ATS and/or Ryan lawsuits could appeal from the orders on the injunction motions in those cases and seek a nationwide injunction or stay of the noncompete ban pending appeal.
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 the worker population;
- 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.
For More Information
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.