Employment Law Report
Pennsylvania Federal Court Muddies the Waters on FTC Non-Compete Rule
By: Sharon Gold
Last week, we reported that a Texas judge, Judge Ada Brown, in Ryan LLC v. Federal Trade Commission, issued a limited preliminary injunction that preliminarily enjoined enforcement of the FTC’s Non-Compete Rule against the plaintiffs in that case. The Texas court did not issue a nationwide ban on enforcement of the Rule. The Texas ruling was preliminary, with a final ruling on the merits to be issued on or by August 30, 2024, just a few days before the Non-Compete Rule is to take effect on September 4, 2024. The FTC’s Non-Compete Rule bans nearly all non-compete agreements with workers, with a few exceptions. Current non-compete agreements for “senior executives” would be grandfathered in under the Rule. A senior executive is defined in the rule as a person in a policy making position who makes more than $151,164 a year.
Meanwhile, on July 23, 2024, a federal judge in Pennsylvania denied a preliminary injunction for a different group of plaintiffs, siding instead with the FTC. ATS Tree Services, LLC v. Federal Trade Commission, No. 2:24-cv-01743-KBH (E.D. Pa.). The Pennsylvania Judge held that the plaintiffs had not shown that they would suffer irreparable harm without an injunction and that the plaintiffs were unlikely to succeed on the merits in their challenge to the Rule. The Judge held that the Non-Compete Rule was within the FTC’s authority to prevent unfair competition.
What do these conflicting rulings mean for employers today? As of today, the Non-Compete Rule is still scheduled to take effect on September 4, 2024, for all employers except the plaintiffs in the Texas case. However, a nationwide ban is possible with the Texas court’s final ruling on the merits that is expected by August 30. In addition, now that there are two federal courts with conflicting rulings on the Non-Compete Rule, we can expect that there will be appeals in both cases and that the issue could eventually find itself before the U.S. Supreme Court.
Employers are wise to follow the news regarding this issue because it will likely be on the eve of the effective date when we discover whether the Rule will be in effect or not. In the meantime, employers should have a plan in place to implement if the Rule takes effect on September 4, including revisions to current non-competition agreements, notices that are required under the Rule, and analyzing other ways to protect business interests (e.g. narrowly tailored non-solicitation and/or non-disclosure agreements for certain level employees).
If your business needs assistance examining these options, or has questions about the Rule’s impact on current and future non-compete agreements, please consult your Wyatt, Tarrant & Combs labor and employment counsel.
