{"id":16043,"date":"2024-08-08T18:41:15","date_gmt":"2024-08-08T16:41:15","guid":{"rendered":"https:\/\/labre.nl\/?p=16043"},"modified":"2024-08-08T19:33:45","modified_gmt":"2024-08-08T17:33:45","slug":"usa-ftcs-non-compete-ban-stayed-by-court","status":"publish","type":"post","link":"https:\/\/labre.nl\/en\/2024\/08\/08\/usa-ftcs-non-compete-ban-stayed-by-court\/","title":{"rendered":"USA: FTC\u2019s Non-Compete Ban Stayed by Court"},"content":{"rendered":"\n

\u00a0<\/p>\n

On May 7, 2024, the Federal Trade Commission (FTC) published its highly anticipated and contentious edict on non-competition covenants (the \u201cFinal Rule\u201d) in the Federal Register. Federal Trade Commission, 89 FR 38342<\/a>. The rule, which bans all new non-competes and makes existing covenants invalid unless in the case of a senior executive or a bona fide sale of a business, was set to take effect September 4, 2024 (120 days after publication) but was stayed by a Texas federal court.<\/p>\n

Ongoing Litigation:<\/strong> On July 3, 2024, the United States District Court for the Northern District of Texas postponed the effective date of the Final Rule. The Court is currently hearing the case filed against the FTC by Ryan LLC and its intervenors (Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce), and the judge has announced that she intends to issue a decision about whether to permanently enjoin the rule by August 30, 2024. While the current preliminary injunction applies only to the named Plaintiffs, Judge Brown\u2019s final decision on August 30th may apply to non-parties as well under Fifth Circuit precedent. The presiding Judge requested that the parties brief the issue of nationwide application of the injunction before she issues her merits disposition. Ryan LLC v. Federal Trade Commission<\/span>. There are differing opinions among experts as to whether a federal circuit court has the authority to enter a nationwide injunction, so it\u2019s possible the case could ultimately go to the Supreme Court, leaving a nationwide stay of enforcement in the grey zone for a longer period.<\/p>\n

Opponents of the rule argue that the FTC has exceeded its rule-making authority conveyed by the Administrative Procedure Act (APA) and intruded on an area usually legislated by state governments. They claim that non-competes safeguard companies\u2019 trade secrets, protect them from client losses, and ultimately help workers by increasing retention of highly trained employees.<\/p>\n

Proponents (workers\u2019 rights organizations, etc.) claim that non-competes are exploitative, that non-disclosure and solicitation agreements are sufficient to protect businesses, and that banning non-competes will increase workers\u2019 wages, innovation from locked up talent, and new startups.<\/p>\n

Either Way, the Ball Bounces:<\/strong> Regardless of the outcome in the Texas Court, it is likely that there will be continued activity on this issue as public support for advancing workers\u2019 bargaining positions is growing. If the Final Rule is invalidated, it\u2019s likely that the FTC will propose a new version that more closely mirrors certain existing state laws, which limit the applicability of non-competes, for example, with salary thresholds.<\/p>\n

Looking Ahead:<\/strong> Now is a good time to reassess your approach to restrictive covenants in case the Final Rule is not blocked.<\/p>\n