In a much-anticipated ruling entered on July 3, 2024, a federal judge in the Northern District of Texas (“the Court”) temporarily blocked, via a preliminary injunction, the implementation of the Federal Trade Commission’s (“FTC”) worker non-compete rule (“Final Rule”). The injunction will remain in effect until the Court issues a final merits-based decision on or before August 30, 2024. Although the Court agreed with many of the plaintiffs’ arguments—including the argument that the FTC lacked authority to issue the Final Rule—the Court declined to issue a nationwide injunction and limited its ruling to the plaintiffs in the lawsuit. Additional background on the Ryan, LLC lawsuit was discussed in our prior article, linked here.
In the 33-page ruling, the Court explained that the challenge to the Final Rule was likely to succeed on the merits and that the public interest weighed in favor of blocking the Final Rule. Importantly, the Court held that the FTC lacks the substantive rulemaking authority to issue the Final Rule.
Notably, the Court denied the plaintiffs’ request to block the Final Rule nationwide, partly based on prior case law and partly based on a lack of legal briefing submitted by the plaintiffs. Thus, the scope of the Court’s injunctive relief is limited to the plaintiffs who are parties to the lawsuit.
Procedurally, the preliminary injunction blocking the FTC’s Final Rule as it relates to the plaintiffs will remain in effect until the Court issues a final merits-based decision on or before August 30, 2024. We anticipate that the final merits-based decision will result in a conversion of the preliminary injunction in favor of the plaintiffs to a permanent injunction in favor of the plaintiffs. What remains to be seen is whether the plaintiffs—particularly the U.S. Chamber of Commerce—will be able to convince the Court (e.g., through supplemental briefing) that an injunction should extend to the “associational members” of the U.S. Chamber of Commerce.
In light of the Court’s ruling, the FTC’s Final Rule is still technically scheduled to go into effect on September 4, 2024, for all entities that are i) not parties to the lawsuit in the Northern District of Texas; and ii) subject to FTC jurisdiction.
That said, another legal challenge to the FTC’s Final Rule that our team is monitoring is ATS Tree Services, LLC v. FTC. The lawsuit is pending in a Philadelphia federal court. In that case, the court has scheduled a July 10 hearing on the plaintiff’s motion to block/invalidate the Final Rule, and a decision on the merits is expected no later than July 23, 2024. Therefore, July 23 will be the next opportunity for further guidance from the courts on the enforceability of the Final Rule.
Practical Takeaways
- The Ryan, LLC Court essentially struck down and eviscerated the FTC’s Final Rule, but it only did so for the benefit of the plaintiffs in the lawsuit.
- Continue to check back on our website for updates because, in theory, the Ryan, LLC Court could issue more favorable guidance for employers as the Ryan, LLC case progresses.
- Similarly, we’ll provide updates on the ATS Tree Services, LLC case as they become available.
- Given the fluidity of these cases, employers will need to conduct a risk tolerance assessment as the September 4, 2024, compliance date draws closer.
- Employer strategy options, at this juncture, will run the gamut from a “wait and see” approach; to an intentional non-compliance with the FTC’s Final Rule approach (based on the rationale in the Ryan, LLC court’s opinion); to a full-blown compliance approach pending the issuance of a “controlling” decision (for example, from the U.S. Supreme Court).
If you have any questions on issues discussed in or related to this post, please contact:
- John Bowen at (317) 429-3629 or jbowen@hallrender.com;
- Dana Stutzman at (317) 977-1425 or dstutzman@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
