Trade Secrets & Employee Mobility

Over the course of the Biden administration, we have closely monitored parallel efforts by the Federal Trade Commission (FTC) and National Labor Relations Board (NLRB) to ban or limit the use of most non-compete agreements by employers. Now, in the wake of the recent presidential election, the future of these federal efforts is very much up in the air.

Predicting the incoming Trump administration’s position on non-compete bans is not straightforward. For one thing, the politics of non-competes is uncommonly non-partisan. The four states that generally ban non-competes include both very “blue” states (California and Minnesota) and very “red” states (North Dakota and Oklahoma). In addition, Trump advisors and appointees have conflicting views on the issue. On the one hand, former Florida congressman Matt Gaetz, a close advisor to Mr. Trump and his first pick for Attorney General, has previously publicized his support for the FTC’s non-compete ban. On the other hand, the Texas federal judge who blocked the FTC non-compete ban from taking effect nationwide was appointed by Mr. Trump during his first term.

Ultimately, the fate of FTC and NLRB efforts to ban non-competes will be in the hands of the individuals Mr. Trump picks to lead these agencies. Since winning the election, Mr. Trump has been setting records with the pace of his appointments to key posts but has not yet announced his nominees to lead the FTC and NLRB. Recent reporting, however, offers insight into some of the contenders for these posts as well as the likely fate of efforts by these agencies to ban non-competes once Mr. Trump takes office.

The United States Courts of Appeals for the Fifth and Eleventh Circuits will have their chance to weigh in on the FTC’s Noncompete Ban, which had been scheduled to go into effect on September 4, 2024, but was enjoined a couple of weeks before that date.

First, the Fifth Circuit.  The FTC Noncompete Ban was blocked on a nationwide basis on August 20, 2024, when the United States District Court for the Northern District of Texas issued a memorandum opinion and order in Ryan LLC v. Federal Trade Comm’n, Case No. 3:24-cv-00986-E, granting the plaintiff’s motion for summary judgment and setting aside the Ban.  On October 18, 2024, the FTC filed a Notice of Appeal of the opinion and order to the Fifth Circuit.  The FTC Noncompete Ban remains enjoined during the pendency of this appeal.

In addition to the Fifth Circuit appeal, the FTC is taking a second bite at the proverbial apple, in the Eleventh Circuit.  On August 15, 2024, in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316, the United States District Court for the Middle District of Florida granted the plaintiff’s motion for a preliminary injunction (although limited in scope only to the plaintiff), prohibiting the FTC from enforcing the Noncompete Ban.  This was similar to how the U.S. District Court in Texas had previously ruled, on Ryan LLC’s preliminary injunction motion.  On September 24, 2024, the FTC filed a Notice of Appeal of the Florida District Court’s preliminary injunction to the Eleventh Circuit.

National Labor Relations Board (“Board”) General Counsel Jennifer Abruzzo (“Abruzzo”) issued a General Counsel Memo (Memo GC 25-01) last week signaling that employers could face civil prosecution and significant monetary remedies for using non-compete and so-called “stay-or-pay” provisions in agreements with their employees.The new memo, issued on October 7, 2024, builds on Abruzzo’s earlier General Counsel Memo issued in May 2023, where, as we reported, she outlined her belief that nearly all post-employment non-competes violate employees’ rights under the National Labor Relations Act (the “Act”).

Since Abruzzo’s May 2023 memo, employers have witnessed a number of significant developments in this space, including the Federal Trade Commission’s (“FTC”) issuance of a rule in April 2024 banning the use of most non-competes and a subsequent decision by a Texas federal judge blocking that FTC rule. In June 2024, an NLRB Administrative Law Judge issued a ruling in a case involving an Indiana HVAC company finding that non-competes and non-solicitation clauses violate the Act, a decision currently being appealed to the Board.

In her October 7, 2024 memo, Abruzzo again urges the Board to find non-competes with all employees who are subject to the Act’s jurisdiction (nonmanagerial and nonsupervisory employees) to violate the Act except in a few limited circumstances, arguing that such provisions are frequently “self-enforcing” and deter employee mobility. She also advocates for “make whole” remedies where employers are found to have continued to maintain unlawful non-competes. Specifically, the memo argues that merely voiding such provisions is insufficient and that employees should be afforded the right to seek compensatory relief for the “ill effects” that flow from complying with “unlawful non-compete provisions.”

Last week, employers who use noncompetes got more good news with respect to the Federal Trade Commission’s proposed noncompete ban.

As readers of this blog are probably aware, back in August, the FTC’s noncompete ban was blocked when the United States District Court for the Northern District of Texas issued a memorandum opinion and order in Ryan LLC v. Federal Trade Comm’n, Case No. 3:24-cv-00986-E, granting the plaintiff’s motion for summary judgment and setting aside nationwide the FTC’s noncompete ban that was scheduled to go into effect on September 4, 2024.

Employers who use noncompetes may have breathed a sigh of relief with the Texas Court’s ruling, but a small doubt of uncertainty lingered.  Could another court reach the opposite decision and rule that the FTC noncompete ban may go into effect?

Two other federal lawsuits (one in Pennsylvania and one in Florida) challenging the FTC noncompete ban remained pending, and each had ruled upon a motion for a preliminary injunction regarding the FTC noncompete ban.  Like the Court in Texas, in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316 (M.D. Fla.), the Florida Court granted the plaintiff’s motion for a preliminary injunction (although limited in scope only to the plaintiff), and seemed likely to reach a final decision on the merits in line with the Texas Court. 

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.

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.     

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.

This is the final installment of our three-part series discussing employers’ most frequently asked questions in response to the Federal Trade Commission’s (FTC) Final Noncompete Rule (the “Noncompete Rule”).

As reported in Part 2, there are continued attempts at both the federal and state level to ban or restrict the use of noncompetes.  As a result of this ongoing attack on noncompetes, employers have asked a third – and most important – question: “In light of the Noncompete Rule and push by many states to restrict the use of noncompetes, what should we be doing now to best protect our business interests?”

The answer to this often-asked question is to ensure that the company’s trade secret and confidential information is protected to the fullest extent possible through the use of a Trade Secret Assessment, or as we have referred to it: a “Trade Secret Tune-Up."

This is the second installment of our three-part blog series that is intended to respond to employers’ three most frequently asked questions in response to the Federal Trade Commission’s (FTC) Final Noncompete Rule (the “Noncompete Rule”). Part 1 addressed whether employers can seek to enforce their noncompetes pending the anticipated effective date of the Noncompete Rule. 

A second frequently asked question is: “Can we continue to enter into noncompetes with newly hired, or existing, employees?”  The short answer is “yes”, but employers should be aware of some pitfalls.

This three-part blog series is intended to identify and respond to three of the most frequently posed questions by employers in response to the Federal Trade Commission’s (FTC) Final Noncompete Rule (the “Noncompete Rule”).

We previously reported on the Federal Trade Commission’s (FTC) Noncompete Rule and the currently pending litigation challenging the Noncompete Rule.  In one of those cases, which was brought in the United States District Court for the Northern District of Texas and consolidated with the lawsuit filed by the United States Chamber of Commerce, the plaintiffs filed a Motion for Stay and Preliminary Injunction. The court has indicated that it intends to rule on that motion by July 3, 2024.

As we have previously written, on April 23, 2024, the Federal Trade Commission (FTC) issued a sweeping final rule (“the Rule”) that purports to ban virtually all post-employment noncompete agreements in the United States. The Rule was formally published in the Federal Register on May 7, 2024, and will go into effect 120 days later, on September 4, 2024--if it survives the legal challenges that were filed in quick response.

While justice may not always be swift, the news about the Rule and challenges to it have developed at breakneck speed by many litigators’ standards over the ...

Our colleagues Peter Steinmeyer and Erik Weibust at Epstein Becker Green co-authored an article in Thomson Reuters Practical Law, titled “Expert Q&A on the FTC's Final Rule Banning Post-Employment Non-Competes.”

Following is an excerpt (see below to download the full version in PDF format):

On April 24, 2024, the Federal Trade Commission (FTC) announced the issuance of a final rule banning employers from entering into, enforcing, or attempting to enforce post-employment non-compete clauses with workers, subject to limited exceptions, and invalidating all ...

We recently reported on the Federal Trade Commission’s (FTC) 3-2 vote to issue its final noncompete rule that, unless it is enjoined, would ban all new noncompetes and a majority of existing noncompetes (the Noncompete Rule).  As expected, within hours of the FTC’s vote on the final noncompete rule, Ryan, LLC, a leading global tax services and software provider, filed a lawsuit challenging the Noncompete Rule, and shortly thereafter the Chamber of Commerce of the United States of America (the U.S. Chamber) followed suit, filing its own lawsuit seeking to vacate and set aside the ...

As expected, the Federal Trade Commission (FTC) voted 3-2 yesterday to issue its final noncompete rule, with only a few changes from the proposed rule that are discussed below. Unless it is enjoined, which we expect, the rule will become effective 120 days after publication of the final version in the Federal Register.

If the final rule survives the legal challenges, which are likely to make it all the way to the United States Supreme Court, all new non-competes would be banned. Except for existing non-competes for senior executives (as defined below), all existing noncompetes with ...

As we discussed earlier this year, the U.S. Department of Justice (“DOJ”) in recent years has brought numerous criminal prosecutions against companies accused of engaging in so-called “naked” no-poach agreements, i.e., agreements among competing businesses to restrict hiring or compensation of employees, outside of any legitimate collaborative relationship.  The DOJ’s efforts in this regard were spurred by the issuance in 2016 of Antitrust Guidance for Human Resources Professionals, which was a warning issued by the DOJ and the Federal Trade Commission ...