In our previous Alert, we discussed two pending lawsuits against the Federal Trade Commission(“FTC”) regarding its new non-compete ban rule. The Final Rule was published in the Federal Register on May 7, 2024, and is set to go into effect on September 4, 2024. However, as of May 9, 2024, the U.S. District Court for The Northern District of Texas Dallas Division granted the United States Chamber of Commerce, Texas Association of Business, and Longview Chamber of Commerce the right to intervene as Plaintiffs in Ryan LLC’s case against the FTC. The Court found it necessary to allow intervention because the Chamber’s interest may be inadequately represented by Ryan alone and the two separately-filed lawsuits share a common question of law or fact.
As a result, the Court in Texas expects to issue a decision on whether it will preliminarily stop enforcement of the FTC’s Non-Compete Rule, by July 3, 2024.
In addition to the case in Texas, there is another case pending in the U.S. Court for the Eastern District of Pennsylvania. In that case, ATS Tree Services, LLC (“ATS”), a tree service company, seeks both a preliminary and permanent injunction to prohibit the enforcement of the FTC’s Final Rule and to set it aside completely. ATS asserts similar arguments made by the U.S. Chamber and Ryan, LLC about the importance of non-competes. Accordingly, there is the potential for a split between the Circuits now that litigation exists in two different Circuits which could potentially create an issue for the United States Supreme Court to review.
So What Now for Employers?
As stated before, do not panic. While the legitimacy of the FTC’s new rule is being litigated and still not in effect, employers do NOT need to make any changes and should wait for further guidance as this matter develops. Continue to stay tuned and Z&R will continue to update you.
*Please contact ZR’s Practice Leader of its Non-Compete/Trade Secret practice, Ami J. Patel (ajp@zrlaw.com) at 216-696-4441 if you have questions relating to the FTC’s new Non-Compete Rule and need assistance with review of your existing agreements.