Peter A. Steinmeyer, Erik W. Weibust, and Carolyn O. Boucek, attorneys in the Employment, Labor & Workforce Management practice, co-authored an article in Thomson Reuters Practical Law The Journal, titled “Legal Challenges to the FTC’s Non-Compete Ban.” (Read the full version – subscription required.)

Following is an excerpt:

On April 23, 2024, the FTC announced the issuance of a final rule banning employers from entering into, enforcing, or attempting to enforce post-employment non-compete clauses, subject to limited exceptions, and invalidating all existing non-competes, with a narrow exception for certain senior executives (FTC: Non-Compete Clause Rule, 89 Fed. Reg. 38342 (May 7, 2024); for more information, see The FTC’s Final Rule Banning Post-Employment Non-Competes in the May 2024 issue of Practical Law The Journal).

As predicted, shortly after the publication of the FTC’s final rule, there were multiple legal challenges to its validity. Lawsuits were filed against the FTC in the US District Courts for:

  • The Northern District of Texas by Ryan, LLC, an accounting firm, with the US Chamber of Commerce and other trade groups intervening.
  • The Eastern District of Pennsylvania by ATS Tree Services, LLC, a 12-person tree care company.
  • The Middle District of Florida by the Property of the Villages, LLC, a real estate company.

The plaintiffs in all cases sought injunctive relief and a stay of the final rule’s effective date.

While the various preliminary injunction rulings were conflicting, on August 20, 2024, the Texas district court granted summary judgment for the plaintiffs in Ryan, ruling that the FTC lacked the authority to issue the rule and that the rule was arbitrary and capricious. As a result, the court issued an order and final judgment setting aside the FTC’s final rule nationwide and ordering that it not be enforced or otherwise take effect on September 4, 2024 or thereafter. (Ryan, LLC v. Fed. Trade Comm’n, 2024 WL 3879954 (N.D. Tex. Aug. 20, 2024).)

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