UPDATE:  On July 23, 2024, a United States District Court Judge in Pennsylvania denied a request for an injunction to prevent the FTC’s rule from becoming effective September 4, 2024. The Pennsylvania Court determined it was unlikely the plaintiff would ultimately win its attack on the FTC rule when the case is finally decided in the future. This decision contrasts the Texas Court's decision discussed below. In that case, the Texas Court found the plaintiffs had a likelihood of success in their attack on the FTC rule.

As of now, there is no nationwide injunction to prevent the FTC rule from becoming effective for most employees in the United States on September 4, 2024. That said, the Texas Court has promised to issue a ruling on whether the FTC’s ban can take effect before the effective date. If the Texas Court rules against the FTC, as its initial decision signals, we would further anticipate the court to issue a nationwide ban on the enforcement of the FTC rule (but that is not guaranteed).

One thing has become slightly clearer as a result of the Pennsylvania decision, however. Our nation’s courts may not align on whether the FTC’s rule is legal and it is possible the issue will have to be ultimately decided by the U.S. Supreme Court.

We will continue to update you as circumstances dictate.

Back in April, the FTC made an election year splash by announcing a final rule putting the future of non-compete agreements in serious doubt.  Short of an injunction by a federal court, most non-compete agreements would become unenforceable later this year.

Many business owners have been apoplectic since.  Many employees have been straining at their chains of perceived bondage.  Both have been waiting for clarity, which we now have – at least temporarily.

On Wednesday, Texas Federal District Court Judge Ada Brown issued a preliminary injunction preventing the FTC rule from becoming effective for the Plaintiffs until the lawsuit concerning the FTC’s authority to make such a rule is resolved.

This outcome is not terribly surprising, given the stakes.  If the FTC rule were allowed to become effective and then, some months or years later, overruled by a finding the FTC overstepped its authority, employers and employees would find themselves in a strange form of limbo with no real guidance about what happens next.

Put in the form of a hypothetical – can you imagine an employee, who is released from a non-compete under an effective FTC rule, leaves their job for a competitor and, a year into their former non-compete period, finds the FTC’s rule overturned?  Would the non-compete be effective again?  Would they get credit for the time they were freed from it? These and a hundred more questions would arise with no real guidance for employers, employees or even courts about how to address it.

Judge Brown promised a ruling on the merits at the end of August before the rule would become effective based on its prior publication date by the FTC.  We may expect an additional injunction at that time with broader scope.  Gray Reed's Labor & Employment team will issue an update at that time.