With prior articles published in April and May, Nelson Mullins has been tracking the FTC Noncompete Final Rule banning non-competition provisions (the “Rule”) for months. The Rule remains on track to take effect on September 4, 2024, absent a potentially imminent court ruling in Texas. At present, a federal district court in Pennsylvania has green lighted the Rule. 

On July 23, 2024, a Pennsylvania federal judge declined to issue a preliminary injunction staying the Rule. See ATS Tree Services, LLC v. FTC, No. 2:24-cv-1743 (E.D. Pa. 2024). The court found that the plaintiff was unable to demonstrate irreparable harm and was also unlikely to succeed in demonstrating that the FTC lacked constitutional or statutory authority to implement the Rule.

The ATS ruling comes on the heels of a similar challenge heard by a Texas federal court, which reached a starkly different decision by issuing a preliminary injunction staying the Rule, but only as to the specific plaintiff-employer. See Ryan, LLC v. FTC, No. 3:24-cv-00986-E (N.D. Tex. 2024). The Ryan Court indicated that it expects to issue a final decision on the merits by August 30, 2024, just days before the Rule is slated to become effective.

Based on the narrow application of the Ryan Court’s preliminary ruling and the ATS Court’s denial of injunctive relief, absent further judicial intervention, the Rule will likely become effective on September 4, 2024. In light of the Rule’s stringent compliance measures, employers should take steps now to prepare for compliance, including, at a minimum, auditing agreements containing non-compete provisions, and working with counsel to prepare and ready notices required by the Rule.

Nelson Mullins will continue to monitor ongoing legal challenges that may impact whether and when the Rule ultimately becomes effective.

Employers should consult with counsel before taking any action under the Rule.