New Jersey businesses should expect that courts will generally refuse to enforce existing non-compete agreements after September 4, 2024, despite recent lawsuits challenging the Federal Trade Commission’s (“FTC’s”) recently adopted ban on non-compete agreements.
In adopting the new rule, the FTC went to great lengths to demonstrate that non-competes suppress wages and limit the choices of both workers and employers in making employment choices; as a result, the FTC said, non-competes are anti-competitive and an appropriate subject for an FTC rule issued pursuant to the FTC’s antitrust enforcement powers.
Two courts recently issued orders in connection with the FTC’s new rule. One of those courts, a federal district court in Philadelphia in ATS Tree Services, LLC. v. Federal Trade Commission, on July 23, 2024, refused to enjoin a non-compete ban, suggesting that most courts will likely enforce the FTC’s new rule. The Philadelphia court concluded that the plaintiff failed to show that the non-compete ban would cause it irreparable harm, or that the plaintiff was likely to succeed on the merits. The court in ATS Tree Services LLC found the FTC had the procedural and statutory authority to promulgate the non-compete ban.
On the other hand, earlier, on July 3, 2024, a Texas federal district court in Ryan LLC v. Federal Trade Commission, enjoined enforcement of the FTC rule against the plaintiffs, finding the plaintiffs were likely to succeed on their claim that the non-compete ban is “arbitrary and capricious” and outside the FTC’s statutory authority. However, the Texas court’s preliminary injunction applied to only the named plaintiffs, including Ryan LLC and the U.S. Chamber of Commerce and other local chambers. The court declined to extend the injunction to Chamber of Commerce members, limiting the order to the organization itself. In issuing the injunction, the Texas court said it will rule on the merits of the case by August 30, 2024, five days before the FTC rule goes into effect.
The legal analysis of these two cases comes to conflicting conclusions on the likelihood of the merits, but ultimately neither case has halted the nationwide enforceability of the new non-compete rule.
Bottom Line: As it stands, the FTC non-compete ban will be in effect on September 4, 2024, although it will not apply to the plaintiffs in Ryan LLC. However, we expect there will be significant movement on this topic over the next few weeks. Connell Foley will continue to monitor court opinions and agency regulations and announcements for forthcoming guidance on the FTC’s non-compete ban. To protect against the disclosure of valuable, non-public information to competitors, employers should be relying on confidentiality agreements, non-solicitation agreements and inventions agreements. Employers should also begin to compile mailing addresses for employees with non-compete agreements to prepare for the current September 4, 2024, deadline to notify employees about the validity of these agreements. Employers should consult with Connell Foley to determine the required substance of the notices and the timeline for sending them out. Please contact an employment lawyer at Connell Foley with questions regarding these or any of the other legal changes.
Of CounselA transactional lawyer working closely with business clients, Noel Humphreys actively participates in the ins and outs of business organizations. He focuses his practice on business transactions, lending transactions ...
AssociateZac Brower is an associate practicing in Connell Foley LLP’s Corporate and Business Law, Commercial Litigation, Construction, and Labor and Employment groups. In his transactional practice, Zac drafts and revises various ...