Earlier this year the Federal Trade Commission (FTC) published a rule that would ban almost every post-employment non-competition provision. Non-competition agreements are agreements that limit or totally restrict the employee’s ability to obtain similar employment somewhere else within a stated geographic region and also typically for a stated period of time. An employment candidate’s job offer is also typically contingent upon the employee agreeing to the contract.

The FTC’s rule banning non-compete agreements would be effective September 4, 2024. As expected however, there were lawsuits filed challenging the FTC’s authority to issue such a rule.  Early this month a federal court in Texas issued a temporary injunction against the rule. But in issuing the injunction, rather than enjoining the rule completely, the court limited its effect to just the named plaintiffs in the case.

The case was brought by a global tax service firm called Ryan LLC (Ryan LLC v. Federal Trade Commission). Other plaintiffs joined the suit as well but as stated above, the temporary injunction only applies to Ryan LLC. Plaintiff Ryan LLC argued that 1) The FTC does not have authority to issue such rules about unfair methods of competition because that authority was not given to it in the law and 2) the FTC actions were arbitrarily and capriciously an abuse of power.

A final decision by the federal court in the North District of Texas is expected by August 30, 2024. Unfortunately, this is only five days before the rule banning non-competes are scheduled to go into effect.

That being the case, employers interested in maintaining non-compete agreements have another case that may be a winner.  The other case challenging the FTC’s rule is ATS Tree Services, LLC v. Federal Trade Commission. This case was brought in a Pennsylvania federal court and a ruling on injunction against the FTC is expected there as well. Hopefully it will be a nationwide injunction against the FTC rule.

It is recommended that employers that have non-compete agreements continue to review and analyze their agreements. If necessary, those employers may have other agreements drafted that include restrictive terms such as non-disclosure or establishes confidentiality terms and also may include non-solicitation provisions – all of which may legally provide for the same protections as a non-competition term and without the FTC getting in the way.

Sources: Lexology, Kilpatrick Townsend & Stockton LLP. Texas Federal Court’s Limited Ruling Enjoining the FTC’s Non-compete Rule Leaves Employers with Questions. (7/8/2024).

Lexology. Holland and Knight LLP District Court Issues Injunction Prohibiting Enforcement of FTC Non-Compete Ban (7/5/2024)