Controversy Over Non-Compete Clauses Continues
Earlier this year, the Federal Trade Commission (FTC) published a rule that would invalidate almost all non-compete clauses in employment contracts (except those for CEOs or in connection with a sale of a business). The rule is set to take effect on September 4, 2024. The rule is described in greater detail in our previous article: FTC Proposes Significant Change Regarding Non-Compete Clauses.
Since then, a number of lawsuits have been brought challenging the rule. So far, a preliminary injunction has been granted in one case and denied in another. On July 3, 2024, the federal District Court for the Northern District of Texas granted a preliminary injunction in a case brought by Ryan LLC and joined by several other plaintiffs, including the U.S. Chamber of Commerce. The ruling enjoins enforcement of the rule against the plaintiffs in the case only. On July 23, 2024, the District Court for the Eastern District of Pennsylvania denied a preliminary injunction, finding that the plaintiff ATS Tree Services was unlikely to prevail on the merits challenging the FTC’s rule.
The FTC is not the only agency challenging non-compete clauses. In 2023, the General Counsel for the National Labor Relations Board (NLRB) issued a memorandum stating that non-compete clauses can violate the National Labor Relations Act if they interfere with workers’ rights to engage in concerted activity to seek employment with competitors. On June 13, 2024, a NLRB judge found a non-compete clause to be an unfair labor practice.
Some states are also hostile to non-compete clauses. California bans them in almost all circumstances. In Illinois, the Illinois Freedom to Work Act prohibits non-competes for employees earning less than $75,000 and imposes certain restrictions for other employees.
Our firm monitors this issue closely and will report other significant developments.
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