FTC Non-Compete Clause Rule: Without A Nationwide Injunction What Are Businesses To Do?

Despite ongoing legal challenges, there is not currently a nationwide injunction delaying or stopping the FTC Non-Compete Clause Rule from becoming effective September 4, 2024. Consequently, absent a development in the pending legal challenges (discussed in more detail below), businesses that have not already done so should start planning for what seems to be a likely deadline for implementation.

The status of the pending legal challenges:

Ryan, LLC v. FTC – As noted in our May 7, 2024, May 23, 2024, and July 3, 2024 blog posts, the Ryan case is currently pending in the U.S. District Court for the Northern District of Texas. On July 3, 2024, the Ryan court granted the plaintiff’s preliminary injunction motion, which stayed the Rule’s application only as to the plaintiffs in that case. The Ryan court will issue a decision on the enforceability of the Rule on or before August 30, which may include vacating it for everyone, not just the parties in that case.

ATS Tree Services LLC v. FTC – The ATS case is currently pending in the U.S. District Court for the Eastern District of Pennsylvania. On July 23, 2024, the ATS court denied the plaintiff’s motion for a preliminary injunction and stated the FTC has authority to enforce the Rule. The ATS court’s ruling on dispositive motions is expected by the end of November 2024.

Properties of the Villages Inc. v. FTC – Most notably, the Properties case is currently pending in the U.S. District Court for the Middle District of Florida. On July 2, 2024, the Properties plaintiffs filed a motion for preliminary injunction and requested a stay of the Rule’s effective date, but only as to the Properties plaintiffs. There is a hearing on the motion set for August 14, 2024, but no confirmation on when a decision will be issued.

If there is not a vacatur or nationwide injunction entered in these or any case prior to September 4, the Rule will become effective that day. Williams Parker continues to closely monitor developments and will provide updates as they become available.

Actions for businesses to consider in anticipation of the looming deadline:

• Identify former and current workers with existing non-compete clauses in agreements.
• Review other agreements and provisions that have the same effect as non-competes.
• Analyze who qualifies as a senior executive under the Rule.
• Evaluate whether employees should be elevated to a senior executive position.
• Enter into agreements with senior executives.
• Draft notices to current and former workers with existing non-compete clauses and consider how and when to send them. Employers can utilize the FTC’s Model Notice or have a customized compliant notice drafted that better protects the employers’ interests.