Tear Up All Non-Compete Agreements? Not so Fast
On April 23, 2024, the Federal Trade Commission (“FTC”) announced its Non-Compete Clause Rule (“Non-Compete Rule”)[1] which prohibits parties from both entering new non-competition agreements and enforcing existing non-competition agreements with limited exception.[2] As the rule was published in the Federal Register on May 7, 2024, the Non-Compete Rule has an effective date of September 4, 2024—thus, all non-competition agreements outside the limited exception enumerated in the rule would be deemed unenforceable as of this date. But is it a foregone conclusion this will actually happen? Well not exactly.
Since the FTC announced its rule, multiple lawsuits have been filed against the FTC challenging the FTC’s authority to promulgate the Non-Compete Rule.[3] Generally, these lawsuits advance three principal arguments as to why the Non-Compete Rule cannot be enforced: (1) the FTC lacks statutory authority under the FTC Act (45 U.S.C. §§ 41–58) to issue the Non-Compete Rule, (2) if the FTC was given statutory authority under the FTC Act to issue the Non-Compete Rule, this was an unconstitutional delegation of legislative power by Congress, and (3) the Non-Compete Rule is “arbitrary and capricious” because the FTC’s decision to promulgate it was unsupported by the economic evidence in front of it and the FTC failed to adequately consider alternatives to the rule. Moreover, these lawsuits generally seek both an injunction prohibiting the Non-Compete Rule from taking effect and an order vacating and setting aside the rule.
Of the three cases that have been filed, it appears that Chamber of Commerce for the United States et al. v. Federal Trade Commission et al. (“Chamber of Commerce”) will take the lead in resolving the arguments presented above. The plaintiffs in this case have already filed a motion seeking a preliminary injunction prohibiting the FTC from enforcing the Non-Compete Rule during the pendency of the lawsuit and/or an order postponing the Non-Compete Rule’s effective date for the same period. The court, in response to this motion, entered a scheduling order in which the court noted the case was an appropriate one to “‘advance the trial on the merits and consolidate it with the hearing’ on [the plaintiff’s] motion for a preliminary injunction.” In addition, the court also noted in its scheduling order that it will “consider summary judgment granting permanent relief on the same schedule as it considers [the plaintiffs’] motion for preliminary relief.” In essence, this means that the court is accelerating the timeline to decide the issues raised above—which directly impact whether the Non-Compete Rule can be enforced—to resolve these issues prior to the Non-Compete Rule becoming effective.[4] Viewing the court’s scheduling order, it appears that the court will issue a final order determining these issues around late June or early July—far before the effective date of the Non-Compete Rule.
For parties wondering whether they will still have enforceable rights under non-competition agreements or are free from the agreement’s restrictions, it is important that they stay in tune with the developments in Chamber of Commerce and the other cases challenging the validity of the Non-Compete Rule. If you have questions regarding your non-competition agreements and whether that non-competition agreement is still effective under the Non-Compete Rule, contact the attorneys at Rabin Kammerer Johnson at (561) 659-7878.
[1] For an overview of the specifics of the rule, see Fact Sheet on FTC’s Proposed Final Noncompete Rule, Federal Trade Commission (Apr. 23, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/04/fact-sheet-ftcs-proposed-final-noncompete-rule.
[2] Id.
[3] Specifically, three separate lawsuits have been filed against the FTC: (1) Ryan, LLC v. Federal Trade Commission, Case No. 3:24-cv-986, United States District Court for the Northern District of Texas, filed April 23, 2024, (2) Chamber of Commerce for the United States et al. v. Federal Trade Commission et al., Case No. 6:24-cv-00148, United States District Court for the Eastern District of Texas, filed April 24, 2024, and (3) ATS Tree Services, LLC v. Federal Trade Commission, et al., Case No. 2:24-cv-1743, United States District Court for the Eastern District of Pennsylvania, filed April 25, 2024.
[4] The Chamber of Commerce court specifically set the following deadlines for the parties in the case: (1) the FTC and Lina Khan (Chairperson of the FTC and a named defendant in the case) have until May 31, 2024 to file briefing on the matters raised by the plaintiffs’ motion, (2) the plaintiffs are then allowed until June 12, 2024 to file a reply to the defendant’s brief, and (3) the defendants are then allowed a sur-reply by June 19, 2024. The court then stated it will set a hearing on preliminary relief and summary judgment, and if necessary, a consolidated bench trial, on a date close to June 19, 2024.
