On August 14, 2024, the United States District Court for the Middle District of Florida issued a preliminary order holding the Federal Trade Commission’s (FTC) ban on employee noncompetes (the “Noncompete Rule”) to be unlawful. However, the court limited its order to the specific plaintiff that brought that particular case. The court, in other words, did not issue any relief from the Noncompete Rule for the millions of other employers across the country.
The Middle District of Florida thus becomes the second court in the country to rule against the Noncompete Rule. On July 3, 2024, a federal court in Texas preliminarily found the Noncompete Rule to exceed the FTC’s authority — but, like the Middle District of Florida, the Texas court limited its relief to the five plaintiffs specifically named in that case. Then, on July 23, 2024, a different federal court in Pennsylvania sided with the FTC, finding the Noncompete Rule to be a valid exercise of the FTC’s authority.
Interestingly, although the Middle District of Florida reached the same conclusion as the Texas court, the two courts’ reasoning was very different. The Texas court held that the FTC only has the authority to adopt regulations about “‘agency organization procedure or practice’ as opposed to ‘substantive rules.’” The Middle District of Florida, by contrast, held that the FTC likely does have some power to adopt substantive rules but that this rulemaking power does not allow the FTC to decide “major questions” of policy. Borrowing from a recent Supreme Court concurrence, the Middle District reasoned: “[I]f a parent gives a babysitter a credit card and says ‘make sure the kids have fun while we’re out,’ the parent might expect that the babysitter would take the kids out for ice cream, but would not expect the babysitter to take the kids on an overnight trip to Las Vegas.” By analogy, the court held that the FTC likely does have some powers to adopt substantive rules of unfair competition, but the Noncompete Rule goes too far by deciding a major policy question without clear Congressional authorization.
While critics of the Noncompete Rule will applaud the Middle District of Florida’s ruling, the fact remains that no court has yet issued national relief from the Noncompete Rule. That said, we continue to anticipate a final ruling from the Texas court on or before August 30, 2024, to determine whether the Noncompete Rule will be blocked on a national basis. Until then, our advice remains unchanged. Unless the Noncompete Rule is blocked on a nationwide basis, the Rule will require notifying current and former employees that their noncompete agreements will not be — and cannot be — enforced going forward, with notice to be provided at the employees’ last known street address, email address, or phone number. (Importantly, the Noncompete Rule does not apply to pre-existing noncompete agreements with “senior executives” who earn at least $151,164 per year and have organization-wide policymaking authority, so the notice should not be sent to any such senior executives.) The deadline for sending this notice will be September 4, 2024, unless a court issues nationwide relief before that date. It therefore would be prudent for employers to start gathering all the information they would need to comply with the notice requirement. But employers should hold off on actually distributing any notice until further guidance from the courts.
With this latest ruling by the Middle District of Florida, the judicial “score” is now 2-1 against the Noncompete Rule. But the score is close, and the game remains very much in play.
