As we previously reported, in April of this year, the Federal Trade Commission (“FTC”) issued a final rule regarding non-compete agreements.  The FTC’s rule operates as an almost complete ban on such agreements. Unless enjoined by a court, the rule is scheduled to take effect on September 4, 2024. Since April, several lawsuits have been filed challenging the FTC’s ban on non-compete agreements.

Earlier this month, the Eastern District of Texas was the first to rule on one of these challenges.  In that case, several businesses/business groups, including Ryan, LLC, the U.S. Chamber of Commerce, Business Roundtable, Longview Chamber of Commerce, and Texas Association of Business moved for a preliminary injunction temporarily blocking implementation of the rule and the FTC’s enforcement of the rule on a nationwide basis.  The Texas court agreed that a preliminary injunction was warranted but limited the injunction to the specifically named plaintiffs and intervening parties in the case (the entities mentioned above).  The injunction does not extend to businesses that are members of these organizations and it is not a nationwide injunction.  The court stated that the moving parties had not briefed associational standing in order to provide a basis for the court to broaden the scope of the injunction to member businesses.  The plaintiffs/intervenors moved for reconsideration, requesting that the preliminary injunction be broadened to include member businesses, but the court denied the motion.  Further briefing is scheduled for late July and early August, and the court has indicated that it will rule on the parties’ request for a permanent injunction by August 30, 2024.  While it appears likely that the court will issue a permanent injunction, the scope of that injunction (whether it will be nationwide and/or extend to businesses who are members of the U.S. Chamber of Commerce or other business groups involved in the case) remains unclear. 

Meanwhile, a Pennsylvania court is poised to rule on a second challenge to the FTC’s rule by July 23, 2024.  That case is ATS Tree Services v. FTC.  It is possible, but unclear, whether the Pennsylvania court will issue a preliminary injunction and, if so, whether it will be a broader one than the Texas court’s injunction order.

Finally, a third challenge was filed on July 2, 2024 in Florida by the Properties of the Villages, Inc.  In that case, the FTC has until July 25, 2024 to oppose the motion for preliminary injunctive relief.  This case presents a third opportunity for an order enjoining the FTC’s rule on a nationwide basis.

We will continue to monitor and report on these cases.  Unfortunately, even if a broad, nationwide injunction is issued in one of these cases, it will not be until shortly before the rule is scheduled to take effect for the vast majority of employers on September 4, 2024.  This leaves little time for employers to determine what they need to do to comply.  Given that there is no guarantee any of these courts is going to issue a nationwide injunction, employers should begin taking steps to comply with the FTC’s rule in the event compliance is needed by September 4, 2024.  This means (1) identifying employees with non-compete agreements that run afoul of the FTC’s rule and preparing notices to issue to these employees if and when the rule takes effect on September 4 informing them that their non-compete agreements are unenforceable, and (2) revising employment-related agreements for use on a go-forward basis so that any restrictive covenant terms do not run afoul of the FTC’s rule.

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Photo of Robin E. Largent Robin E. Largent

Robin Largent has been advising and defending employers for over twenty years, primarily in California state and federal courts.  Robin’s practice focuses on the defense of wage and hour class and representative (PAGA) actions.  Robin’s practice also focuses heavily on compliance and advice…

Robin Largent has been advising and defending employers for over twenty years, primarily in California state and federal courts.  Robin’s practice focuses on the defense of wage and hour class and representative (PAGA) actions.  Robin’s practice also focuses heavily on compliance and advice on best practices to prevent and mitigate the risks of employment litigation.  Robin also regularly defends employers ranging from small, locally owned businesses to large national corporations in single plaintiff employment litigation involving claims for discrimination, harassment, retaliation, breach of contract, and wrongful termination.  Robin has substantial appellate experience and success handling appeals, writ petitions, and amicus briefs in both state and federal courts on issues such as class certification (particularly in the wage and hour arena), manageability and due process concerns associated with class action trials, novel issues of interpretation of wage and hour laws, exempt/non-exempt misclassification issues, meal and rest break compliance, trade secret/unfair competition matters, and the scope of federal court jurisdiction under the Class Action Fairness Act.  Finally, Robin is well-known for her former role as Editor and primary author of the California Labor and Employment Law Blog for close to a decade.

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