Since it was first published in April, the fate of the Federal Trade Commission’s (FTC) final non-compete rule has been, to put it mildly, less than certain. Now, about a month before the rule is scheduled to take effect, the situation is even more murky.
As has been widely reported, multiple lawsuits are seeking court orders striking down the FTC’s rule before it takes effect on September 4, 2024. So far, those suits resulted in contradictory rulings.
Earlier this month, a federal court in Texas made a preliminary ruling that the FTC’s rule was unenforceable, concluding (among other things) that the FTC lacked authority to issue such a sweeping non-compete ban. While it was a win for opponents of the rule, the court’s ruling only banned the FTC from enforcing its rule against the specific plaintiffs in the case before it. The court did not relieve other employers around the country from their obligation to comply with the rule, although it did not close the door on ultimately deciding to do so either.
That court indicated it plans to make another ruling on or before August 30, 2024, on whether to expand its ruling barring the FTC’s rule on a nationwide basis. Such a ruling could come only a few days before the rule is slated to take effect on September 4.
As if that uncertainty wasn’t enough, just last week, a federal court in Pennsylvania reached the opposite conclusion, finding that the FTC’s rule was legal and enforceable. Among other things, the court in Pennsylvania noted that the tree services company that brought the suit failed to establish a reasonable possibility that the FTC lacked authority to issue the final rule and that the company failed to prove it would be irreparably harmed by the non-compete ban, since it could still protect itself through other measures such as non-solicitation and non-disclosure clauses.
So where do things stand now considering these dueling court decisions? For now, the FTC’s rule is still scheduled to take effect on September 4. But the upcoming decision from the Texas court—or an emergency appeal in the Pennsylvania case or the decision from the court in a similar case pending in Florida—could change that, but there is no guarantee any of them will.
Given that, employers should continue to prepare for the possibility that the FTC rule takes effect on September 4 and put themselves in a position to comply with the rule if it does. Among other things, that means identifying employees bound by non-compete restrictions (as that term is defined by the FTC’s rule), crafting the notice required to be delivered to those employees informing them that their non-compete is no longer in effect (should it need to be eventually issued), and ensuring that the organization is protecting itself through non-disclosure and non-solicitation clauses and other measures. Click here for an article summarizing the final rule’s core requirements.
In related news on the non-compete front, Pennsylvania recently enacted the Fair Contracting for Health Care Practitioners Act. Generally speaking, the rule restricts employers’ ability to enter into non-compete agreements with healthcare practitioners (including physicians, physician’s assistants, and certified nurse practitioners). The law will take effect on January 1, 2025, and is summarized in more detail in this article by Tucker Arensberg healthcare attorney Adam Appleberry.
