FTC’s Non-Compete Ban In Litigation Limbo After Recent Court Injunction

In theory, the vast majority of existing and future non-competition agreements should become void and unenforceable as of September 4, 2024. That is the scheduled effective date for the Final Rule approved by the U.S. Federal Trade Commission (FTC) on April 23, 2024, which effectively bans all non-competes, except those for “senior executives” or ones related to the sale of a business. (Click here for our detailed discussion of the ban). In reality, however, pending litigation, including a recently issued order enjoining enforcement of the Final Rule, has cast serious doubt on the ban’s fate.

Several lawsuits challenging the Final Rule’s legality were filed within hours of the FTC’s approval. In one of those cases, Ryan, LLC v. Federal Trade Commission, a federal judge in Texas issued a preliminary injunction on July 3, 2024 that held that the FTC likely lacked the legal authority to prohibit non-competes. Judge Ada Brown of the U.S. District Court for the Northern District of Texas found that: 

“…the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g). The Court GRANTS the motion for preliminary injunction and postpones the effective date of the Rule as applied to the Plaintiffs. While this order is preliminary, the Court intends to rule on the ultimate merits of this action on or before August 30, 2024.”

As the order notes, the preliminary injunction only applies to the plaintiffs in that case, including the U.S. Chamber of Commerce. However, if the court reaches the same conclusion when it considers the underlying merits of the challenge to the ban, it could issue a nationwide injunction that would prevent it from going into effect on its September 4 effective date. As the judge notes, that decision could come down only a few days before that date.

Other cases attacking the non-compete ban remain pending as well. Though the Final Rule’s ultimate fate remains clouded in uncertainty, it is still set to go into effect in September until and unless a court says otherwise. Accordingly, dental practice owners who rely on non-competition provisions to protect their business interests should presume that any such provisions will no longer be valid. Owners should engage counsel to review non-compete language in their employment agreements and consider other options for protecting trade secrets and confidential information. 

If you have questions or concerns about the FTC’s Final Rule or the impact of this recent court ruling, please call Grogan Hesse & Uditsky at (630) 833-5533 or contact us online to arrange for your free initial consultation.