Should employers get ready to comply with the FTC noncompete ban, or wait it out?
What's an employer to do? The FTC rolled out its noncompete ban earlier this year. The effective date is Sept. 4, 2024. If the rule actually goes into effect and is not enjoined or vacated by the courts, it will indeed go into effect on that date (absent the FTC signaling otherwise).
Of course, this issue only applies to those employers who use noncompetes with employees who are not “senior executives” (as defined in the FTC Rule). However, NEW noncompetes even with senior executives will be unlawful if the rule goes into effect. The rule does not generally ban non-solicitation restrictions (although, a seriously overbroad non-solicit could be unlawful if it has the “effect” of being a noncompete).
The good news for employers with noncompete agreements is that there is a pending lawsuit that will likely determine whether the ban will go into effect (the United States District Court for the Northern District of Texas). That court has already issued an initial injunction that prohibited enforcement of the rule against the plaintiffs in that case only (i.e. that initial ruling, issued a month ago, does not apply to any employer other than the plaintiffs in that case). However, the court is going to issue an updated ruling on the plaintiffs’ request for a preliminary injunction by no later than Aug. 30, 2024. The general consensus among commentators (and my feeling on the matter) is that it is reasonably likely that the court will issue an injunction that applies to all employers nationwide. However, at the same time, a Pennsylvania federal district court recently ruled that the FTC did have the authority to issue the rule (and did not enjoin it). Thus, we have conflicting federal court decisions and there are no guarantees on what will happen next. It is possible that (a) the Texas court will issue no injunction, (b) the court will issue an injunction only as to the plaintiffs in that case, (c) the court vacates the rule entirely, or (d) the court preliminarily enjoins the rule nationwide.
Again, in the event there is no injunction or it is not vacated, the rule goes into effect on Sept. 4, 2024. By no later than that date, employers with noncompetes are required to provide “notice” to current and former employees who are subject to noncompete clauses. Thus, if the Court takes until the end of August to issue its ruling, that will not leave much time for compliance by Sept. 4 (particularly given the weekend in between is a holiday weekend). In short, employers may want to consider preparing for the possibility that they will need to comply by Sept. 4. Compliance would include sending out the required notice on or before Sept. 4, and ensuring no new noncompetes are required of employees beginning on Sept. 4.
The following is a link to the full rule, which includes model notice language: https://www.federalregister.gov/documents/2024/05/07/2024-09171/non-compete-clause-rule.
