FTC Final Rule Scheduled to Go Into Effect Sept. 4

In April, the Federal Trade Commission implemented its Final Rule, which bans all existing and new non-compete agreements for most workers. The FTC’s Final Rule is scheduled to go into effect on Sept. 4.

Since April, several parties have challenged the Final Rule, seeking judicial relief from the nationwide ban. Two courts have enjoined enforcement of the rule as to the parties in those cases, and one court has upheld the rule. To date, no court has stayed the effective date of the rule nationwide.

• We previously wrote about the decision in Ryan, LLC v. Federal Trade Commission. On July 3, a federal district court in Texas issued a preliminary injunction in a challenge to the Final Rule. The court held that the FTC had exceeded its statutory authority in adopting the rule. The court stayed enforcement of the rule as to the named plaintiffs, but has not yet imposed a broader, nationwide injunction. The court has stated it will issue a final decision on or before Aug. 30, which may (or may not) stay the effect of the Final Rule nationwide.
• On July 23, in ATS Tree Services, LLC v. Federal Trade Commission, a federal district court in Pennsylvania rejected a similar challenge to the FTC’s issuance of the Final Rule. The court held that the Final Rule fell within the FTC’s rulemaking authority under the FTC Act and denied the plaintiff’s motion for a preliminary injunction.
• On Aug. 15, in Properties of the Villages, Inc. v. Federal Trade Commission, a federal district court in Florida issued a preliminary injunction, holding that the Final Rule exceeded the FTC’s authority because the FTC had violated the major questions doctrine — meaning that the FTC had not acted with clear congressional authorization in issuing a regulation with significant economic or political implications. However, like the Ryan court, the Florida court stayed enforcement of the rule only as to the named plaintiffs and did not effectuate a nationwide ban.

In light of the uncertainty of whether the Sept. 4 effective date will hold, employers are grappling with the choice of preparing the required notice or waiting to see if the legal challenges stay the effective date. As things stand now, of the three challenges to the Final Rule, the Ryan challenge is poised to have a ruling on a permanent injunction before the effective date, and for that reason, the most likely contender to effectuate a stay of the rule on a nationwide basis. If that ruling comes, however, it will most likely come around Aug. 30, just days before the scheduled effective date.

Robinson Bradshaw is ready to advise clients on best practices in this uncertain environment and will continue to monitor and provide updates on developments. If you have any questions, including how to best navigate the uncertain legal situation for your organization, please contact the authors or any member of Robinson Bradshaw's Employment & Labor or Antitrust & Competition practice groups.