Winstead’s Labor & Employment team previously reported that the Federal Trade Commission (“FTC”) issued its final rule largely banning noncompetes nationwide (“Rule”), spurring races to the courthouse in the federal district courts. In that regard, we reported that Judge Ada Brown in the United States District Court for the Northern District of Texas issued a ruling on July 3, 2024, in Ryan LLC v. Federal Trade Commission, enjoining the FTC from enforcing the Rule against the specific plaintiffs in that case until Judge Brown makes a decision on the ultimate merits of the action. Judge Brown is slated to rule on the merits of the case on or before August 30, 2024.

In ATS Tree Services, LLC v. Federal Trade Commission et al. though, Judge Kelley Hodge of the U.S. District Court for the Eastern District of Pennsylvania issued an order on July 23, 2024, denying a request for a nationwide preliminary injunction that would block the Rule from going into effect on September 4, 2024. In contrast to Judge Brown’s July 3 ruling, Judge Hodge found that “the FTC is empowered to make both procedural and substantive rules as is necessary to prevent unfair methods of competition.”

Yet another plaintiff filed a lawsuit on June 21, 2024, entitled Properties of the Villages, Inc. v. Federal Trade Commission, pending before Judge Timothy J. Corrigan in the Middle District of Florida. In that lawsuit, the plaintiff seeks a preliminary injunction of the FTC Rule as applied against the named plaintiff. The plaintiff also seeks an order vacating and setting aside the Rule in its entirety pursuant to the Administrative Procedure Act. Judge Corrigan is set to hear oral argument on the plaintiff’s motion for preliminary injunction on August 14, 2024.

With conflicting district court decisions concerning the FTC’s authority to issue the Rule, the Rule appears primed for a journey through the federal appellate courts. As of the date of this update, none of the parties in Ryan LLC or ATS Tree Services, LLC have filed a notice of appeal of the preliminary injunction rulings. However, once an appeal is filed, a circuit split could emerge that might need to be resolved by the United States Supreme Court. However, the Rule’s journey up to the Supreme Court will take time and is not likely to be resolved before the Rule’s current effective date.

Unless a court issues an order enjoining the enforcement of the Rule nationwide, the Rule is still scheduled to go into effect on September 4, 2024. Employers should be ready for that possibility. The Rule requires employers to send employees with existing noncompetition covenants individualized, written notice (to be delivered by the effective date) that their existing noncompete cannot be legally enforced against that worker. Notices can be delivered to workers via hand-delivery, regular mail, email, and even text messages. Employers are exempt from the notice requirement where the employer has no record of the worker’s street address, email address, or mobile telephone number.

The Rule includes model language to assist employers in sending compliant notices to applicable workers. The model language includes the phrase “[EMPLOYER NAME] will not enforce any non-compete clause against you.” In publishing the Rule, the FTC reasoned that because this language does not identify the recipient as having a noncompete, the employer does not need to determine which of its workers have noncompetes and instead can simply send a mass communication such as a mass email to all current and former workers. In utilizing the model language provided by the FTC, employers guarantee that they are in compliance with the Rule’s notification requirement.

Employers should remain mindful that the notice requirement does not apply to the Rule’s enumerated exceptions. That is, employers do not need to deliver notice to workers (1) who are considered highly compensated senior executives (as defined in the Rule) with existing noncompetes or (2) entered into a noncompete pursuant to the bona-fide sale of a business. Employers likewise do not need to deliver notice to a worker in a situation where causes of action related to an existing noncompete accrued before the final rule.

With just under a month to prepare and deliver notices to workers, what action should employers begin taking now? In addition to monitoring the status of any existing or newly filed litigation, employers should begin contacting their employment attorney to determine the next steps and consider whether to prepare required notices, including verifying employee contact information.