The Impending FTC Non-Competition Final Rule

Earlier this year, on April 23, 2024, the Federal Trade Commission (the “FTC”) issued a final rule (the “Final Rule”) barring nearly all non-competition provisions for most workers in the United States. The Final Rule is set to go into effect on September 4, 2024. As previously reported, however, the Final Rule has been challenged in several courts throughout the country. For instance, on July 3, 2024, in Ryan LCC v. Federal Trade Commission, the Northern District of Texas enjoined the Final Rule against the plaintiffs and plaintiff-intervenors in the case, but declined to extend the ruling further. Judge Ada Brown indicated that she would circle back on the question of a nationwide injunction and rule on the merits of the Ryan case by August 30, 2024. An interesting wrinkle is that, on June 28, 2024, just days before Judge Brown’s initial ruling, the U.S. Supreme Court, in Loper Bright v. Raimondo, rejected the long‑standing Chevron deference standard for government agency actions. Judge Brown did not rely on Loper in the Ryan decision. But it still begs the question of how the judicial branch will consider the FTC’s expansive views of its rulemaking powers. This new landscape could support Judge Brown issuing a nationwide injunction in the Ryan case. On the other hand, on July 23, 2024, following the Supreme Court’s paradigm shift, the Eastern District of Pennsylvania upheld the Final Rule in ATS Tree Services, LLC v. Federal Trade Commission and rejected the argument that the FTC exceeded its statutory authority in adopting the Final Rule. 

As the clock ticks down to September 4, there are concrete steps that employers can take so they are prepared if, in fact, the Final Rule goes into effect on that date. These steps include:

• Remain aware that the effective date of the Final Rule remains September 4, 2024, for all employers other than the plaintiffs and plaintiff-intervenors in the Ryan case.
• Determine their risk tolerance and plans of action during this time of judicial deliberation with employment and trade secret experts.
• Consider what to do with “senior executives” who currently are not subject to non-compete agreements.
• Review existing agreements with workers and assess the extent to which these agreements would be deemed non-competes under the Final Rule.
• Decide whether to revise agreements to strengthen other restrictive covenants to protect legitimate business interests.
• Prepare the notice to be sent to all current and former workers bound by a non-competition provision before or on September 4.

MoFo attorneys are ready to assist and provide guidance on navigating this evolving landscape.