July 03, 2024

FTC Left Out in the Cold as Judge Puts Noncompete Rule on Hold

On Wednesday, July 3rd, U.S. District Judge Ada Brown ruled on the lawsuit that was filed challenging the Federal Trade Commission’s final rule that effectively banned all non-compete agreements. The rule was scheduled to take effect September 4, 2024. The judge granted a preliminary injunction delaying implementation of the rule finding, “the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g).”

What now? The judge also wrote, “While this order is preliminary, the Court intends to rule on the ultimate merits of this action on or before August 30, 2024.”

Next Steps? I suspect the question most employers might have is, “How does this impact our notice requirement under the rule?” First, talk to your company’s legal counsel. You may still have the same options as you had before.

  1. Notify your employees prior to August 30th that you will not enforce their existing noncompete agreement on and after September 4, 2024. If you do so, you might let them also know that your decision might change depending upon the court’s final ruling and you will let them know.
  2. Wait and see what the judge’s final ruling is, then issue the notice or not, accordingly.
  3. Issue the notice to your employees and leave it as is, regardless of the judge’s final ruling. Remember, even if this rule is permanently enjoined, you will still need to comply with myriad state rules that limit, restrict or ban non-compete agreements.

Then, stay tuned!