Trade Secrets & Employee Mobility

Ten days ahead of her self-imposed deadline, Judge Ada Brown of the Northern District of Texas issued a memorandum opinion and order granting the plaintiffs’ motions for summary judgment, setting aside the Federal Trade Commission’s forthcoming Noncompete Ban nationwide, which was set to go into effect on September 4, 2024. In other words, as we predicted, the FTC’s Noncompete Ban is dead nationwide unless and until a Circuit Court of Appeals or the Supreme Court of the United States revives it.  

Judge Brown granted plaintiffs’ summary judgment motion as to every claim under the Administrative Procedures Act (APA) and the Declaratory Judgment Act (DJA), ruling that the FTC exceeded its statutory authority when it issued the Noncompete Ban and that the Noncompete Ban is arbitrary and capricious.

Judge Brown set the tone for her decision by quoting the Supreme Court’s recent opinion in Loper Bright Enters. v. Raimondo, 144 S.Ct. 2244, 2261 (2024), where the Court overruled the principle of Chevron deference established in Chevron U.S.A., Inc. v. Nat’l Res. Def. Council, Inc. (1984), stating: “Congress in 1946 enacted the APA as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.”

After what must have been a grueling two-hour and 52-minute oral argument on the merits of a challenge to the FTC’s Final Rule banning noncompetes, Judge Timothy Corrigan of the United States Court for the Middle District of Florida issued a ruling from the bench in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316 granting the plaintiff’s Motion for Stay of Effective Date and Preliminary Injunction.  Importantly, as with the decision in the Northern District of Texas, the court limited the scope of the preliminary injunction to the named plaintiff only.

Judge Corrigan’s swift ruling granting the motion to stay at the completion of the hearing is a welcome decision given the looming September 4, 2024 effective date of the FTC’s noncompete ban. While the court rejected two of plaintiff’s arguments as to success on the merits, the court held that the FTC exceeded its authority under the major questions doctrine.

In particular, the court quoted Supreme Court precedent that “common sense, informed by constitutional structure, tells us that Congress normally intends to make major policy decisions itself, not leave those decisions to agencies[.]”  Judge Corrigan considered the “huge economic impact” the Final Rule would have in transferring value from employers to employees, along with the Final Rule’s political significance preempting state competition laws.  In finding that the plaintiff established a likelihood of success on the major questions doctrine, the Florida court has established a split from the Eastern District of Pennsylvania, which ruled in July that the FTC’s issuance of the Final Rule did not implicate the major questions doctrine.   

On Spilling Secrets, our podcast series on the future of non-compete and trade secrets law, our panelists discuss the ongoing legal challenges to the Federal Trade Commission’s (FTC’s) nationwide non-compete ban and what the future may hold for employers:

On July 23, 2024, a federal judge in Pennsylvania denied a motion to enjoin the FTC’s non-compete ban. This ruling is in direct opposition to one by a district court in Texas that enjoined the ban in early July.

In this episode of Spilling Secrets, Epstein Becker Green attorneys Peter A. Steinmeyer, A. Millie Warner, and Paul DeCamp look into their crystal ball and make their own predictions for how the FTC’s non-compete ban may or may not survive in the courts.

On Spilling Secrets, our podcast series on the future of non-compete and trade secrets law, our panelists discuss the current state of the Federal Trade Commission’s (FTC’s) nationwide non-compete ban amid ongoing legal challenges:

The FTC’s ban on non-competes will go into effect on September 4, 2024, but legal challenges remain. So, how can employers prepare?

In this episode of Spilling Secrets, Epstein Becker Green attorneys Peter A. Steinmeyer, Erik W. Weibust, and Paul DeCamp tell us more about how the U.S. Supreme Court’s overruling of the Chevron doctrine might affect the FTC’s ability to regulate non-competes. They also discuss a Texas court’s preliminary injunction against the FTC’s non-compete ban* and how various legal challenges have led to a somewhat anticlimactic atmosphere in the employment landscape related to the ban.

*On Tuesday, July 23, after this episode was recorded, a federal judge in Pennsylvania reached the opposite conclusion and declined to temporarily halt the FTC’s non-compete ban.

On July 23, 2024, the United States District Court for the Eastern District of Pennsylvania issued an order in ATS Tree Services, LLC v. FTC, Case No. 2:24-cv-01743-KBH, denying Plaintiff ATS Tree Services, LLC’s (“ATS”) motion for preliminary injunction to enjoin the FTC’s Noncompete Ban which, if not enjoined by other courts, will go into effect on September 4, 2024.

Unlike in Ryan LLC v. FTC, Case No. 3:24-cv-00986-E pending in the United States District Court for the Northern District of Texas, which was discussed in our earlier post, where the plaintiffs include the U.S. Chamber of Commerce, which represents companies employing hundreds of thousands, if not millions, of employees, and Ryan LLC, an employer with thousands of employees nationwide, ATS is a tree-care company that requires each of its 12 employees to enter noncompete agreements restricting their ability to work for ATS’s competitors within a specific geographic area for a year after they leave ATS’s employ.[1] ATS filed a motion for preliminary injunction to enjoin the FTC’s rule banning nearly all noncompetes (the “FTC’s Noncompete Ban”), which would invalidate ATS’s noncompetes on September 4, 2024 if not enjoined.

On July 17, 2024, Governor Josh Shapiro approved Pennsylvania’s first statute imposing limitations on the use of noncompetes in the state. The Fair Contracting for Health Care Practitioners Act (the “Act”) prohibits the enforcement of certain noncompete covenants entered into by health care practitioners and employers. Here are the key points of the Act:

• The Act’s effective date is January 1, 2025.
• Subject to certain exceptions, a “noncompete covenant” entered into after January 1, 2025 is “deemed contrary to the public policy and is void and unenforceable by an employer.”
• A “noncompete covenant” is defined as an “agreement that is entered into between an employer and a health care practitioner in this Commonwealth which has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients, either practicing independently or in the employment of a competing employer after the term of employment.”

We previously reported that Ryan LLC (“Plaintiff”) and the United States Chamber of Commerce (“Plaintiff-Intervenor”), in anticipation of the Northern District of Texas’s merits disposition, would likely seek nationwide application of the preliminary injunction staying the Federal Trade Commission’s (“FTC”) Noncompete Rule, or alternatively, that the preliminary injunction be expanded to apply to all of Plaintiff-Intervenor’s members under the associational standing doctrine.

On July 19, 2024, Plaintiff and Plaintiff-Intervenor filed motions seeking exactly that type of relief. 

We previously reported that the U.S. District Court for the Northern District of Texas in Ryan LLC v. Federal Trade Comm’n, Case No. 3:24-cv-00986-E, granted a preliminary injunction staying the Federal Trade Commission’s (“FTC”) final rule banning almost all post-employment noncompetes (the “Noncompete Rule”), but limited the scope of its ruling to only those parties in that case. Following that ruling, on July 10, 2024, the Plaintiff and Plaintiff-intervenors (“Plaintiffs”) filed an Expedited Motion for Limited Reconsideration of the Scope of Preliminary Relief on the issue of associational standing.

On July 11, the court promptly denied Plaintiffs’ motion. In a one-paragraph order, the court held that Plaintiffs had “not shown themselves entitled to the respective relief requested.” Separately, the court entered an “amended briefing schedule for the merits disposition” (the “Briefing Schedule”) that will likely address many of the issues argued in Plaintiffs’ motion for reconsideration. The Briefing Schedule requires that the matter be fully briefed by August 16, 2024, and the court is scheduled to issue a disposition on the merits by August 30, 2024.     

As we all await rulings on the lawsuits challenging the FTC’s Noncompete Rule (one of which may be decided later today), we provide an update on the Knicks/Raptors trade secret case that we previously discussed on EBG’s Spilling Secrets Podcast Series and blogged about here.  Although the Knicks had a successful year on the court, they suffered an in court loss last week to the Toronto Raptors.    

In the March 2024 edition, Bracket-Busting Trade Secret and Non-Compete Disputes in Sports, we discussed the Knicks’ federal court action against the Toronto Raptors for theft of trade secrets.  We noted that the Knicks sought neither a Temporary Restraining Order nor a Preliminary Injunction and that the defendants filed a motion to dismiss or, alternatively, to stay the case pending arbitration before the Commissioner of the NBA.      

In a lawsuit filed in the United States District Court for the Southern District of New York, the Knicks alleged that their former employee and now current Raptors employee, Ikechukwu Azotam, misappropriated the Knicks’ confidential and proprietary information at the behest of the Raptors, in violation of the Defend Trade Secrets Act (“DTSA”), Computer Fraud and Abuse Act (the “CFAA”), as well as various common law claims.  The defendants moved to dismiss or, alternatively, to compel arbitration pursuant to the NBA’s Constitution and By-Laws, which provide that the NBA Commissioner shall have complete and final jurisdiction over any dispute involving two or more members of the NBA. 

On June 26, 2024, Rhode Island Governor Dan McKee vetoed a bill that would have banned nearly all noncompetes and customer non-solicits in the State of Rhode Island.

The Rhode Island legislature passed 2024-H8059 Substitute A, “An Act Relating to Labor and Labor Relations Rhode Island Noncompetition Agreement Act” (the “Bill”), that if enacted, would have banned all new and existing noncompetes except for those “made in connection with the sale of a business.” If the Bill had been passed, it also would have banned all customer non-solicits, although employee non-solicits would have remained enforceable.