What you need to know about the fast-approaching noncompete ban deadline

On April 23, 2024, the Federal Trade Commission (FTC) issued its Final Rule banning almost all noncompete agreements nationwide with few exceptions for employers that fall under the FTC’s jurisdiction. 

The Final Rule, set to take effect on Sept. 4, 2024, will also require employers to notify current and former workers that their existing noncompete agreements are no longer enforceable. Limited exceptions exist for noncompete agreements already in place with “senior executives” who earn at least $151,164 per year and serve in “policy-making positions” and for prospective noncompete agreements entered into pursuant to a bona fide sale of a business.

Not surprisingly, multiple federal lawsuits have been filed to stop the Final Rule from becoming enforceable. In one of those cases, ATS Tree Services, LLC v. FTC, the U.S. District Court for the Eastern District of Pennsylvania found that the plaintiffs were unlikely to prevail on the merits of their claims against the FTC and denied the plaintiffs’ request for a preliminary injunction blocking enforcement of the Final Rule. Thus, one may reasonably expect the ATS court to ultimately rule in favor of the FTC.

Conversely, the United States District Court for the Northern District of Texas—considering the same issues as those in ATS—entered a limited preliminary injunction in Ryan LLC v. Federal Trade Commission, preventing the Final Rule from being applied against the plaintiffs and intervenors to that case. The Ryan court is expected to issue a final decision on whether a nationwide permanent injunction is appropriate by the end of August 2024, a few days before the Final Rule is set to take effect. 

There are logical reasons for expecting the Ryan court to issue a nationwide injunction. 

The likely basis for vacating the Final Rule—that the FTC lacked authority to promulgate the Final Rule or that the Final Rule itself is arbitrary and capricious—is not specific to the application of the Final Rule to the plaintiffs in the ongoing lawsuits but instead challenges the legality of the Final Rule as applied to all affected by it. Indeed, the court in another legal challenge currently pending in Texas—Chamber of Commerce of the United States of America et al. v. Federal Trade Commission, noted as much, staying that case pending the outcome of the Ryan case and suggesting that any injunctive relief granted there would benefit parties and nonparties alike subject to the Final Rule. 

One other case to keep an eye on is Properties of the Villages, Inc. v. FTC, currently pending before the U.S. District Court for the Middle District of Florida. The court in that case has scheduled a hearing on a pending motion for a preliminary injunction for August 14, 2024. Given the already divergent preliminary decisions in ATS and Ryan, the fate of the Final Rule may ultimately have to be decided by the U.S. Supreme Court. 

Still, employers must remain aware of the Final Rule’s approaching enactment date and cannot assume that a court will block enforcement. Employers should work with experienced employment counsel to create (but not yet implement) a contingency plan in the event that no court issues a nationwide injunction of the Final Rule before September 4, 2024.

In doing so, employers should review their existing noncompete agreements with both current and former employees and consider what alternatives may be used moving forward to protect legitimate business interests should the Final Rule take effect.

As September 4 looms, employers must be prepared to act flexibly so they are not caught flat footed and out of compliance with the law if the Final Rule takes effect.

Editor’s note: Brett Taylor is an attorney with the Rose Law Firm in Little Rock. The opinions expressed are those of the author.