Earlier this month, a federal court in Texas issued a preliminary injunction staying the effective date of the FTC’s non-compete rule. In Ryan, LLC v. FTC, the court held that the plaintiffs established a likelihood of success on the merits of their two arguments that 1) the FTC lacked statutory authority to issue its non-compete rule and the FTC’s actions were arbitrary and capricious. The court declined to issue an injunction on employers nationwide. The parties submitted additional briefing to the court and a final ruling in Ryan is expected by August 30, 2024.
Before businesses could get too excited, however, just a few weeks later, on July 23, a federal court in Pennsylvania denied a similar request in ATS Tree Services v. FTC. In this case, the court found that the plaintiff failed to show that it was likely to prevail on its claim that the FTC’s rule was unlawful, creating a split in federal court authority that had been anticipated since the rule was announced.
As of now, the effective date of the FTC’s rule remains September 4, 2024, for all employers other than the plaintiffs in the Ryan case. While it is possible that the Ryan court may ultimately issue a nationwide injunction on the FTC’s non-compete ban by the end of August, employers should still start to plan now to determine which employees’ non-competes are impacted by the FTC’s ban and prepare the notices required for those employees by the September 4 effective date of the rule.
Employers should also continue to monitor the final outcomes in the ATS Tree and Ryan cases for possible decisions staying the effective date of the FTC’s rule. Of course, employers can (and should) delay sending notices to impacted employees until after the ATS Tree and Ryan courts issue their final decisions – assuming that these rulings do come before the current effective date of the rule.
Questions about what this rule means for your company, which employees may be impacted, how to provide notice to those employees, or how to protect your business? We can help.
Lisa is a Partner and the Litigation Director at M&S. She defends highly regulated businesses in class actions, complex commercial litigation, and government enforcement actions brought by state and federal agencies. Lisa also provides mediation and arbitration services, serving as a skilled neutral in helping disputing parties achieve resolution outside of the courtroom.