As previewed in a May 17, 2024 article, the Federal Trade Commission (“FTC”) adopted a Final Rule on April 23, 2024 banning employers from entering into noncompete agreements with their employees. With the Rule scheduled to take effect on September 4, 2024, a number of cases were filed across the country attempting to block the enforcement of this Rule. On July 3, 2024, a Texas District Court in Ryan LLC v. Federal Trade Commission issued a preliminary injunction against the enforcement of the Rule as to the Plaintiffs in that case.

Ryan LLC v. Federal Trade Commission

Ryan LLC v. Federal Trade Commission was filed mere hours after the FTC voted for its final approval of its rule to ban noncompete agreements. To grant a preliminary injunction, a court must evaluate the likelihood of the plaintiff’s success on the merits, the irreparable harm that would ensue unless enjoined, and the balance of the equities and public interest. In that case, the Texas court held that the plaintiffs had met all three of these requirements and accordingly, it granted the preliminary injunction.

While the entry of the preliminary injunction is good news for the plaintiffs in that case, the ruling does not yet have any implications for employers across the country. The Texas court granted the preliminary injunction only as to the plaintiffs in that case and indicated that it would issue a final ruling on August 30, 2024—mere days before the Rule is set to take effect. Furthermore, the court acknowledged that nationwide relief may be appropriate, however, at this preliminary stage, and without appropriate briefing from the parties, it was not yet ready to decide the issue nationally.

Additionally, Ryan LLC v. Federal Trade Commission was not the only immediate challenger to the FTC’s proposed ban on noncompete agreements. For example, the U.S. District Court for the Eastern District of Pennsylvania recently heard arguments in ATS Tree Services, LLC v. Federal Trade Commission, which similarly seeks a preliminary injunction. The judge in that case indicated that they intend to issue a decision by July 23, 2024.

Next Steps

Given the number of challenges to the FTC’s proposed ban on noncompete agreements and the success of at least one plaintiff in obtaining an injunction, it remains unlikely that the proposed rule will take effect without delay. As such, employers may opt to await the outcome of these pending cases before making any changes to their current business practices. However, employers should remain aware of these potential changes in the near future and be prepared to make these changes in compliance with the Rule should it take effect. Tuggle Duggins will continue to monitor the Rule and will issue more guidance to its clients as the Rule evolves. Our employment law team at Tuggle Duggins can help keep you up to date and answer any questions that arise as a result of this Rule.

For more information, please contact Ross Hamilton at RHamilton@tuggleduggins.com or 336-271-5279 or Claire Thompson at CThompson@tuggleduggins.com or 336-271-5269.

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