The recent developments surrounding the U.S. Federal Trade Commission’s (FTC) rule banning non-compete clauses in employer-employee contracts have sparked significant legal challenges and discussions. On August 15, 2024, a U.S. federal court in the Middle District of Florida granted a plaintiff’s motion for a preliminary injunction and stay of the FTC’s non-compete rule, but only as to the named plaintiff. This decision marks the third U.S. court to rule on a challenger’s request to preliminarily enjoin the rule, and the second to grant relief to preliminarily enjoin the rule and stay the effective date.
The FTC’s rule, finalized on April 23, 2024, aims to ban most non-compete clauses in employer-employee contracts. The rule is set to go into effect on September 4, 2024, pending legal challenges. Legal challenges were swiftly lodged after the FTC’s vote, with the U.S. Chamber of Commerce filing a lawsuit in the Eastern District of Texas on April 25, 2024. The rule has faced criticism for exceeding the FTC’s statutory authority and being arbitrary and capricious.
The rule prohibits employers from imposing non-competes on workers and requires employers to give notice that existing non-competes are no longer enforceable. Exceptions to the rule include existing non-competes with senior executives and non-competes in certain „sale-of-business“ agreements. The rule will supersede all contrary state laws once in effect.
Legal challenges to the rule have been filed in various U.S. federal courts, with differing outcomes. The Ryan LLC case in the Northern District of Texas granted a preliminary injunction, while the ATS Tree Services case in the Eastern District of Pennsylvania denied the motion. The Properties of the Villages case in the Middle District of Florida also granted a preliminary injunction but only as to the named plaintiff.
The future of the FTC’s rule remains uncertain, with potential appellate review and further legal challenges on the horizon. The rule has put non-competes in the spotlight, leading to increased scrutiny and enforcement actions by antitrust enforcers. Additionally, state legislatures, such as New York and California, have shown interest in new proposals to ban or limit non-compete agreements.
Internationally, the UK government has proposed stricter regulations on non-compete clauses in employment contracts, limiting their duration to three months. The Competition and Markets Authority (CMA) in the UK has also published a research report on competition and market power in labor markets, highlighting the prevalence of non-compete clauses and their impact on workers.
Overall, the evolving landscape of non-compete regulations and enforcement actions underscores the importance of understanding and complying with the laws governing these agreements. Businesses and individuals alike must stay informed about the latest developments and be prepared to adapt to changes in the legal landscape surrounding non-compete clauses.