Update on Federal Trade Commission’s Ban of Almost All Non-Competition Agreements
Update on FTC’s ban of almost all employer non-competition agreements
September 4, 2024, is the effective date of the Federal Trade Commission’s (“FTC”) Final Rule banning nearly all non-competition agreements. The litigation filed to stop the rule is percolating through the courts. This blog post will provide a brief update on the litigation and recommendations for employers. For a refresher on the Final Rule, our prior blog post addressing the highlights of the FTC’s Final Rule on non-competition agreements is here.
Two lawsuits remain active. On April 23, 2024, a tax service firm filed suit in Ryan LLC v. Federal Trade Commission, 3:24-cv-986, in the Northern District of Texas, Dallas Division, on the same day that the FTC issued the Final Rule. In the lawsuit, Ryan asked the court to set aside the Final Rule and claimed the FTC lacks authority to issue the Final Rule, the Final Rule is unconstitutional, and the FTC is unconstitutionally structured. On May 7, 2024, the court ordered that it would decide whether to stay the effective date of the Final Rule and issue a preliminary injunction by July 3, 2024.
ATS Tree Services LLC, a 12-employee company, filed a lawsuit in ATS Tree Services, LLC v. Federal Trade Commission, 2:24-cv-1743, in the Eastern District of Pennsylvania on April 25, 2024. This complaint argues the FTC violated the Administrative Procedure Act and the U.S. Constitution when it issued the Final Rule. The lawsuit seeks an injunction of the Final Rule and names the FTC Commissioners as defendants. On May 21, 2024, the court ordered it would issue a decision on the motion for a preliminary injunction by July 23, 2024.
If the courts stay on track with their orders, businesses will soon have rulings on whether the September 4 effective date of the FTC’s Final Rule is stayed. The losing parties will almost certainly appeal those decisions. Employers should prepare for the September 4 deadline by gathering information on the employees who are subject to a non-competition agreement, determining if any of those agreements qualifies under the “senior executive” exception, and having a plan for issuing the required notices, if it becomes necessary to do so. Absent unusual circumstances, employers should maintain their present status until there are rulings from the two courts considering challenges to the FTC’s Final Rule. Clients or businesses with any questions about the FTC’s new Final Rule banning most non-competes should contact Pamela Ploor at (414) 982-2854 / pploor@staffordlaw.com or their Stafford Rosenbaum lawyers.
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