Expert Q&A on Legal Challenges to the FTC's Non-Compete Ban

Peter A. Steinmeyer, Erik W. Weibust, and Carolyn O. Boucek, attorneys in the Employment, Labor & Workforce Management practice, co-authored an article in Thomson Reuters Practical Law, titled “Expert Q&A on Legal Challenges to the FTC's Non-Compete Ban.”

Following is an excerpt (see below to download the full article in PDF format):

On April 23, 2024, the Federal Trade Commission (FTC) announced the issuance of a final rule banning employers from entering into, enforcing, or attempting to enforce post-employment non-compete clauses, subject to limited exceptions, and invalidating all existing non-competes with a narrow exception for certain senior executives (FTC: Non-Compete Clause Rule, 89 Fed. Reg. 38342 (May 7, 2024)). For more details on the rule, see Expert Q&A on the FTC's Final Rule Banning Post-Employment Non-Competes.

As predicted, shortly after the rule's publication, there were multiple legal challenges to its validity. Lawsuits were filed against the FTC in federal district courts in Texas by Ryan, LLC, an accounting firm, with the US Chamber of Commerce and other trade groups intervening, in Pennsylvania by ATS Tree Services, LLC, a 12-person tree care company, and most recently in Florida by the Property of the Villages, LLC, a real estate company. Plaintiffs in all cases sought injunctive relief and a stay of the rule's effective date.

While the various preliminary injunction rulings were conflicting, on August 20, 2024, the Ryan court in Texas granted summary judgment for the plaintiffs, ruling that the FTC lacked the authority to issue the rule and that the rule was arbitrary and capricious. As a result, the court issued an order and final judgment setting aside the final rule nationwide and ordering that it not be enforced or otherwise take effect on September 4, 2024 or thereafter. (Ryan, LLC v. Fed. Trade Comm'n, 2024 WL 3879954 (N.D. Tex. Aug. 20, 2024).)

The Ryan court's ruling directly contradicts the Pennsylvania court's July order denying the plaintiff's request for injunctive relief entirely, holding that the FTC had the statutory authority to issue the rule and rejecting all other challenges.

While the final rule has been set aside for the moment, the legal challenges continue, and uncertainty persists. The district court orders are likely to be appealed, setting up the possibility of conflicting appellate rulings. For now, though, employers are relieved from their obligations under the final rule and, unless and until a Circuit Court or the US Supreme Court rules otherwise, the rule will not go into effect.

Given the significance of this rule for employers, Practical Law Labor & Employment once again reached out to trusted experts Peter A. Steinmeyer, Erik W. Weibust, and Carolyn O. Boucek of Epstein Becker & Green, P.C. to provide updated insights about the legal challenges to the FTC's rule, the recent court decisions in Florida and Texas court, and guidance for employers going forward.