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FTC Noncompete Ban: Uncertainty Remains

On April 23, 2024, the Federal Trade Commission announced its Final Rule prohibiting the vast majority of noncompete agreements in the employment context (the FTC Ban).  While facing significant headwinds in the form of legal challenges, the FTC Ban still stands for now.  Absent any intervening action by the courts, the following restrictions will go into effect on September 4, 2024.

  1. Noncompete agreements entered into on or after the effective date – all such agreements will be unenforceable, regardless of the position held or the salary earned by the worker.
  2. All existing noncompete agreements – i.e. those entered into prior to the Final Rule’s effective date – all such agreements will be unenforceable with the exception of noncompete agreements entered into with “senior executives”. The rule defines this term to refer to workers earning more than $151,164 annually who are in a “policy-making position.”

Notable in the transportation industry, the FTC Ban will not apply to qualifying common carriers.  More specifically, the FTC does not have rulemaking authority over certain common carriers engaged in common carrier activities.  However, with the sunset of the ICC and the elimination of the distinction between common carrier and contract carrier authorities issued by the U.S. Department of Transportation, the full extent to which the FTC Ban applies to motor carriers is unclear – and will likely be debated.

For now, there is much uncertainty concerning whether the FTC Ban will take effect, as there remains a real possibility that a court will issue an injunction halting the FTC Ban.  Indeed, on July 3, 2024, the U.S. District Court for the Northern District of Texas granted a limited preliminary injunction of the FTC Ban, applicable to the parties in that case only.  Ryan, LLC v. FTC (C.A. No. 3:24-cv-00986).  In this preliminary ruling, the court found that (1) the FTC lacked substantive rulemaking authority, (2) the Plaintiffs were likely to succeed on the merits of the case; and (3) there was a substantial likelihood that the FTC Ban is arbitrary and capricious.  The court expressly declined to issue a nationwide injunction at this stage, but it indicated that it would issue its final decision on the merits by August 30, 2024.  Many anticipate the court’s above findings on the preliminary injunction signal the potential for a nationwide injunction in its upcoming ruling on the merits – which could yet come as little as five days before the scheduled implementation date.  There are similar challenges in other courts, and it is possible that an injunction could be issued in those cases based on the reasoning in Ryan.

We will continue to monitor these developments closely.  If you have any questions about the FTC Ban, or, more importantly, how to address the uncertainty in implementation that the FTC has wrought, feel free to contact us.

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News from Scopelitis is intended as a report to our clients and friends on developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.

FTC Noncompete Ban: Uncertainty Remains

On April 23, 2024, the Federal Trade Commission announced its Final Rule prohibiting the vast majority of noncompete agreements in the employment context (the FTC Ban).  While facing significant headwinds in the form of legal challenges, the FTC Ban still stands for now.  Absent any intervening action by the courts, the following restrictions will go into effect on September 4, 2024.

  1. Noncompete agreements entered into on or after the effective date – all such agreements will be unenforceable, regardless of the position held or the salary earned by the worker.
  2. All existing noncompete agreements – i.e. those entered into prior to the Final Rule’s effective date – all such agreements will be unenforceable with the exception of noncompete agreements entered into with “senior executives”. The rule defines this term to refer to workers earning more than $151,164 annually who are in a “policy-making position.”

Notable in the transportation industry, the FTC Ban will not apply to qualifying common carriers.  More specifically, the FTC does not have rulemaking authority over certain common carriers engaged in common carrier activities.  However, with the sunset of the ICC and the elimination of the distinction between common carrier and contract carrier authorities issued by the U.S. Department of Transportation, the full extent to which the FTC Ban applies to motor carriers is unclear – and will likely be debated.

For now, there is much uncertainty concerning whether the FTC Ban will take effect, as there remains a real possibility that a court will issue an injunction halting the FTC Ban.  Indeed, on July 3, 2024, the U.S. District Court for the Northern District of Texas granted a limited preliminary injunction of the FTC Ban, applicable to the parties in that case only.  Ryan, LLC v. FTC (C.A. No. 3:24-cv-00986).  In this preliminary ruling, the court found that (1) the FTC lacked substantive rulemaking authority, (2) the Plaintiffs were likely to succeed on the merits of the case; and (3) there was a substantial likelihood that the FTC Ban is arbitrary and capricious.  The court expressly declined to issue a nationwide injunction at this stage, but it indicated that it would issue its final decision on the merits by August 30, 2024.  Many anticipate the court’s above findings on the preliminary injunction signal the potential for a nationwide injunction in its upcoming ruling on the merits – which could yet come as little as five days before the scheduled implementation date.  There are similar challenges in other courts, and it is possible that an injunction could be issued in those cases based on the reasoning in Ryan.

We will continue to monitor these developments closely.  If you have any questions about the FTC Ban, or, more importantly, how to address the uncertainty in implementation that the FTC has wrought, feel free to contact us.

News from Scopelitis is intended as a report to our clients and friends on developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.