On July 3, the U.S. District Court for the Northern District of Texas issued a limited preliminary  injunction and stay of the Federal Trade Commission’s noncompete final rule, holding that the FTC exceeded its statutory authority and violated the Administrative Procedure Act. The Court limited the scope of the injunctive relief to named plaintiff Ryan LLC and plaintiff-intervenors the Chamber of Commerce of the United States of America; the Business Roundtable; the Texas Association of Business; and the Longview Chamber of Commerce.

“For any employer that was not a plaintiff or plaintiff-intervenor in the action, the noncompete rule is still set to take effect on Sept. 4, 2024, although the court’s opinion clearly casts doubt on the long-term viability of the noncompete rule,” said ABC general counsel Littler Mendelson’s analysis.

On May 14, ABC joined a broad group of trade associations in filing an amicus brief in support of plaintiffs’ request for injunctive relief against the Federal Trade Commission’s final rule to ban noncompete clauses.

ABC members have valid business justifications for utilizing noncompete agreements, such as protecting confidential information and intellectual property.

Background

On April 23, the Federal Trade Commission voted 3-2 to issue its final rule to ban noncompete clauses.

According to the FTC, under the new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives can remain in force, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.

ABC issued a news release opposing the rule:

“The final rule to ban all noncompete agreements nationwide—except existing noncompetes for senior executives—is a radical departure from hundreds of years of legal precedent,” said Ben Brubeck, ABC vice president of regulatory, legal and state affairs. “Ultimately, this vastly overbroad rule will invalidate millions of reasonable contracts—including construction project contracts—around the country that are beneficial for both businesses and employees.”

ABC members have valid business justifications for utilizing noncompete agreements, such as protecting confidential information and intellectual property. This new rule will have a harmful effect on their companies as well as their employees, forcing companies to rework their compensation and talent strategies.

FTC Resources on the Final Rule:

• Summary
• Fact sheet
• Business and Small Entity Compliance Guide
• Final rule

To learn more about the final rule and what happens next, read ABC general counsel Littler Mendelson’s analysis.

In April 2023, ABC submitted comments in opposition to the FTC’s unprecedented proposal to ban noncompetes. ABC also joined the U.S. Chamber of Commerce and 280 business groups in submitting comments urging the FTC to rescind the proposed rule.