By now, regular readers of this Premiere South Carolina Employment Law Blog™ know that the U.S. Federal Trade Commission (FTC) issued a rule in April 2024 banning non-compete agreements. The rule is still set to take effect on September 4, 2024. But of course, since that time, companies and lobbying groups across the country have filed lawsuits seeking to have the FTC’s rule overturned. These lawsuits also seek preliminary injunctions (court orders issued very early in the case, as opposed to permanent injunctions that might be issued much later in the case) that would prevent the FTC’s rule from ever going into effect at all.
What is the Status of the Texas Federal Lawsuit over FTC Rule Banning Non-Compete Agreements?
One of the first lawsuits filed was in Texas Federal Court in late April 2024 by a company called Ryan, LLC versus the FTC. The FTC has fought back against Ryan’s motion for a preliminary injunction. But on July 3, 2024, the Texas federal judge issued a decision that seemed to indicate she was likely to strike down the entire rule at a later date, based on the court’s belief that the FTC has exceeded its authority in issuing the rule banning non-compete agreements to begin with.
The court did decide to issue a preliminary injunction, but the court limited the injunction to protect only the companies who had brought the lawsuit from having the FTC’s rule enforced against them. The rule remains unaffected for every other employee in the country. The judge also stated that she would issue a final decision on the merits of the lawsuit (i.e., whether the FTC’s rule must be struck down altogether) by no later than August 30, 2024, just a few days before the rule goes into effect.
Pennsylvania Federal Court DENIES Motion for Preliminary Injunction and Holds that FTC Has Used Its Authority Properly
In the meantime, other lawsuits have been filed in various states around the rest of the country. One in Pennsylvania, ATS Tree Services v. FTC, has already advanced past the initial lawsuit filing stage and is into the motion for preliminary injunction stage, just like the Texas case. However, in the PA case, the federal judge issued her own decision a few days ago that outright DENIES the companies’ motion for a preliminary injunction altogether. The court found that ATS Tree Services failed to prove irreparable harm, meaning that if the rule is implemented and then later overturned, ATS would not suffer irreparable harm by having to comply with the rule. The court went even further though, finding that the FTC DID HAVE authority to issue the rule.
Ultimately, this decision provides no real clarity on the implementation of the rule moving forward. It remains to be seen whether a court will truly strike down the law altogether before September 4 or if any court will issue a nationwide injunction before that date.
I’ll keep tracking other litigation throughout the country as it develops. There’s at least one other case pending in Florida, Properties of the Villages, Inc. v. FTC, that was filed in June and also seeks injunctive relief. We’ll see how that ones turns out in the coming weeks and months.
