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Contradictory Court Decisions on the FTC's Non-Compete Ban

By: Jennifer Mitchell, CPA, MS Tax

When we originally wrote about this FTC ban on non-compete agreements, we expected there would be opposition. We didn’t anticipate that there would be so much conflicting information to weed through and share. However, staying updated is essential, especially given the potential impact on our clients’ businesses. Here’s the latest:

Overview of the FTC’s Ban

In April 2024, the FTC announced a rule to prohibit most non-compete agreements starting September 4, 2024. This change aims to foster innovation, increase wages, and encourage new business ventures. The ban includes exceptions for senior executives and valid business sales. The FTC projects this will result in a 2.7% rise in new businesses annually and higher worker earnings.

Contrasting Court Decisions

  • Texas Ruling (July 3, 2024): A Texas judge issued a preliminary injunction against the FTC's rule, questioning its authority. This injunction applies only to the plaintiffs involved, Ryan LLC and the U.S. Chamber of Commerce.

  • Pennsylvania Ruling (July 23, 2024): Conversely, a Pennsylvania judge upheld the FTC’s authority to implement the ban, ruling against ATS Tree Services LLC. This decision supports the FTC's stance and allows the rule to stand.

What’s Next?

These conflicting rulings create a lot of uncertainty. The Texas court will issue a final order by August 30, 2024, mere days before the new rule is scheduled to take effect. Further appeals are expected, which may eventually lead to higher court rulings.

What This Means for Your Business

Business owners should prepare for potential changes to non-compete agreements. While they are key to protecting proprietary information and business interests, as well as retaining employees, these new regulations might mean you need to explore alternative strategies.

Recommendations

  1. Consult with Experts: Work with legal and HR professionals to ensure compliance and adapt to changes. We are happy to refer you to some if needed.

  2. Review Existing Contracts: Evaluate your current non-compete agreements and prepare for necessary adjustments.

  3. Stay Informed: Keep up with ongoing legal developments to be ready for quick adjustments.

For personalized guidance and more updates, contact us. Stay tuned to our blog for the latest insights.