Split Decisions on Federal Trade Commission Final Rule on Non-Competition Clauses in Employment Agreements
Employers anxiously awaiting a final decision on challenges to the Federal Trade Commission’s Final Rule banning nearly all non-competition clauses in employment agreements will have to continue to wait. One court refused to block the challenge. Another court preliminarily agreed with the challenge but limited its decision only to the parties in the litigation. Details are below.
On July 24, 2024, a Philadelphia district court beat back a motion in ATS Tree Services, LLC. v. FTC et al., (Case No. 2:24-cv-01743-KBH; Documents 80-81) seeking to stop the FTC’s Final Rule. The employer asked the court to stay the Final Rule’s effective date and to temporarily prevent enforcement of the Final Rule. Judge Kelley B. Hodge, a President Biden appointee, denied the motion and upheld the Final Rule. The court reasoned that ATS Tree Service did not establish a reasonable likelihood that it will succeed on the merits of its claims that the FTC lacks substantive rulemaking authority, exceeded its authority, and that Congress unconstitutionally delegated legislative power to the FTC. It also held ATS Tree Service did not demonstrate that it would suffer irreparable harm.
Despite Judge Hodge’s rejection of the challenge, a district court in Dallas came out differently. In Ryan LLC v. Chamber of the United States of America et al. (Case No. 3:24-cv-00986-E; Document 153), the Northern District of Texas preliminarily agreed with the challenge. On July 3, 2024, the Dallas court preliminarily halted the FTC’s non-compete Final Rule but only against Ryan, LLC, Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce. The court promised to rule on the merits of the legal challenges by August 30, 2024: “[T]he text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition … While this order is preliminary, the Court intends to rule on the ultimate merits of this action on or before August 30, 2024.”
The Final Rule goes into effect for covered employers on September 4, 2024. Absent unusual circumstances, employers should maintain their present status until the Dallas court issues its decision on the request for permanent injunction of the FTC’s Final Rule by August 30, 2024. 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. Our prior blog posts on the FTC Final Rule litigation are here (April 23, 2024) and here (June 18, 2024).
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 or pploor@staffordlaw.com, or contact their Stafford Rosenbaum lawyers.
Stafford Rosenbaum LLP is a full-service law firm with two convenient office locations in Madison and Milwaukee, Wisconsin. 145 years of dedication to businesses, governments, nonprofits, and individuals has proven that effective client communication continues to be the heart of our practice.
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