Quick Hits

• The FTC is appealing a Florida federal court’s preliminary injunction blocking its noncompete ban.
• The appeal comes after a Texas federal court, in a separate case, blocked the FTC’s rule on a nationwide basis, while a Pennsylvania federal court has backed the rule.
• The FTC’s final rule, published in May 2024, would effectively ban all noncompete agreements between employers and employees.

On September 24, 2024, the FTC filed a notice of appeal in Properties of the Villages, Inc. v. Federal Trade Commission, seeking to challenge the preliminary injunction in the U.S. Circuit Court of Appeals for the Eleventh Circuit. A federal district court judge for the Middle District of Florida issued the ruling following a hearing on August 14, 2024, finding that the FTC’s rule, which sought to effectively ban all noncompete agreements between employers and their employees, exceeded the FTC’s authority.

The FTC’s final rule had been scheduled to go into effect on September 4, 2024.

On August 20, 2024, a federal judge for the Northern District of Texas issued a final judgment in a separate case, Ryan LLC v. Federal Trade Commission, blocking the rule nationwide. In doing so, that judge expanded what was a narrower preliminary injunction, ruling that the FTC had exceeded its rulemaking authority with respect to unfair methods of competition. The FTC has sixty days from the Ryan final judgment to appeal it—until October 20, 2024.

Meanwhile, a federal judge for the Eastern District of Pennsylvania in July 2024 reached the opposite conclusion, ruling in ATS Tree Services, LLC v. Federal Trade Commission that the FTC is empowered to issue a broad noncompete ban. The parties are currently briefing ATS’s motion to stay proceedings under the Texas Ryan judgment and expected appeal.

Unless ATS withdraws its case or prevails in its motion to stay, the Pennsylvania ruling potentially tees up a split between federal courts that is likely to be at the center of the FTC’s Eleventh Circuit appeal.

The FTC final rule, which the FTC approved on a 3–2 vote on April 23, 2024, and formally published on May 7, 2024, would effectively ban all noncompete agreements and provisions that function as noncompete agreements between employers and workers as “unfair method[s] of competition.” The rule would further require employers to stop enforcing most existing such agreements and notify their employees that any such agreements would no longer be enforceable.

Next Steps

The FTC’s noncompete ban remains enjoined for now following the ruling from the Northern District of Texas. But the FTC’s notice of appeal in the Florida case signals its plans to defend the rule until a final ruling by respective appellate courts and/or the Supreme Court of the United States. Most experts believe that the rule will not ultimately survive. In the meantime, companies may want to continue to focus on state law compliance and careful drafting to achieve no greater protections than necessary for their business needs.