Written by: Duris Holmes

In April 2024, the Federal Trade Commission issued its final Non-Compete Clause Rule, 16 C.F.R. § 910.1-.6, prohibiting new non-compete clauses and requiring employers to rescind existing clauses and notify past and present employees of the rescission. In anticipation of the September 4, 2024 effective date of the rule, several legal challenges were filed.

In a case filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia, the court has refused to enjoin enforcement of the rule. The plaintiff claimed that the FTC exceeded its authority under the Federal Trade Commission Act and violated Article I of the United States Constitution in enacting the Rule. Judge Kelley Hodge disagreed, finding in part that the plaintiff did not prove a likelihood of success on the merits of the claim. Judge Hodge held that the FTC had authority to adopt the rule under its mandate to prevent prohibited unfair methods of competition and rejected several variations on the arguments to the contrary. Judge Hodge’s July 23, 2024 decision in ATS Tree Services, LLC v. FTC is available here.

In an earlier decision in a case involving the U.S. Chamber of Commerce and others filed in the United States District Court for the Northern District of Texas in Dallas, Judge Ada Brown reached the opposite result. On July 3, 2024, Judge Graves enjoined the FTC from implementing or enforcing the Rule against the plaintiffs but refused to issue a nationwide injunction. Judge Graves intends to issue a ruling on the merits on or before August 31, 2024. Her decision is available here. Though the case is pending in Texas, the decision is potentially important to Louisiana employers as any appeal will be to the Fifth Circuit Court of Appeals, whose jurisdiction includes Louisiana, Mississippi, and Texas.