Earlier this month, we wrote about a Texas federal court’s issuance of a limited preliminary injunction staying the Federal Trade Commission’s (FTC) rule banning non-compete clauses for the plaintiffs in that case. Despite not issuing a preliminary nationwide ban, the Texas federal court stated it would render a final decision on August 30, 2024, before the rule becomes effective on September 4, 2024. Based on language contained in the Texas federal court’s opinion on the preliminary injunction, it appears likely that the Texas federal court will ultimately issue a permanent injunction, effectively killing the FTC’s non-compete ban.
However, on July 23, 2024, a federal court in Pennsylvania refused to follow the Texas court’s lead and decided not to enjoin the FTC’s non-compete ban temporarily. Unlike the Texas federal court, the Pennsylvania federal court ruled that the plaintiff did not satisfy its burden of establishing the need for a preliminary injunction. According to the July 23rd opinion, the plaintiff (1) failed to demonstrate that it would suffer irreparable harm in the absence of a preliminary injunction and (2) would not likely succeed on the merits of the case upon its conclusion. According to the court, any alleged harm to the plaintiff was based merely on “speculative risk.” The court dismissed the plaintiff’s concerns over protecting proprietary information by stating that the plaintiff failed to explain why it could not use alternative methods to safeguard such information, for example, through a narrowly tailored non-disclosure agreement. Finally, the court held that the plaintiff could not show a “likelihood of success on the merits” because, among other things, the FTC was within its authority to issue substantive rules, like banning non-compete clauses, to prevent unfair methods of competition.
Despite this setback for employers, the case likely will be rendered moot by the Texas federal court’s final decision, which, as stated above, is scheduled to be decided by the end of August. Nevertheless, the Pennsylvania federal court’s opinion underscores courts’ lack of consensus on the FTC’s role and authority. If the FTC ultimately appeals an unfavorable decision, which will depend on several factors, including who is elected President in November, the scope of the FTC’s authority may be ultimately decided by the Supreme Court.
We will continue to keep you informed of these developments.
