Breaking News –Courts Are Split Over Ban on Non-Compete Agreements
By: Kyle McCutcheon
Since our article in May, we have been monitoring whether courts will allow the Federal Trade Commission’s (“FTC”) new ban on non-compete agreements to stand. By way of reminder, earlier this year the FTC issued a final rule that becomes effective September 4, 2024, and prohibits employers from entering into or attempting to enforce non-compete agreements with their workers barring a few limited exceptions.
Well, as of July 23, 2024, two courts have had the opportunity to weigh-in. And the outcome? Courts are split as to whether the FTC exceeded its statutory authority–not entirely surprising.
On July 3, 2024, a Texas judge appointed by former President Trump partially enjoined the FTC’s non-compete ban finding that the agency lacked the authority to issue such a ban. Notably, the court also found that there was a substantial likelihood that the new rule would be found arbitrary and capricious. The court stopped short of issuing a nationwide injunction and noted that it will rule on the merits of the matter on or before August 30th.
Fast-forward a few weeks later, now a second court has spoken contrarily. A Pennsylvania judge appointed by President Biden just denied a preliminary injunction requested by a private company. In this case, the court said that the plaintiff failed to show that the FTC’s ban exceeded its rulemaking authority. Rather, the court said that the ban falls squarely within the FTC’s authority to prohibit unfair methods of competition. Additionally, the court found that the plaintiffs failed to show that the ban would cause irreparable harm. Given the current federal district split, and especially if the Texas district court enjoins enforcement of the non-compete ban nationwide, the United States Supreme Court may soon need to sort this out to bring clarity to the American workplace.
If you or a business owner you know needs assistance navigating the FTC’s new rule or help identifying alternatives methods to protect your business, please call or email Attorney Kyle McCutcheon today to schedule a consultation.
Kyle McCutcheon is an Attorney at Provident Law. His practice areas include business, real estate, and estate planning as well as advising church and nonprofit tax-exempt organizations. McCutcheon is licensed to practice law in Arizona and Missouri, and he can be reached at kyle.mccutcheon@ProvidentLawyers.com or at 480-388-3343.