Companies are struggling with whether to inform current and former employees that their noncompete agreements are void as the validity of the Federal Trade Commission’s ban on such contracts remains in legal limbo.
The FTC regulation set to take effect Sept. 4 will trigger this notification requirement, erasing restrictive employment contracts for potentially 30 million workers by the FTC’s estimate and barring new noncompetes going forward.
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While the cases play out in Pennsylvania and Texas, at least one other federal lawsuit is pending in federal district court in Florida, where a real estate firm also seeks to block the FTC rule.
The US Supreme Court’s June decision in Loper Bright Enterprises v. Raimondo—which eliminated the Chevron doctrine under which courts deferred to federal agencies’ reasonable interpretations of ambiguous statutes—likely hurts the chances that the Pennsylvania ruling upholding the FTC ban will survive on appeal, said Kevin M. Passerini, a partner with Blank Rome LLP.
“It is a very deferential ruling as it pertains to federal agencies,” he said. “That sort of deference is unlikely to be viewed favorably in the federal appellate courts, and particularly by this current Supreme Court. I would think its days are numbered.”
In the meantime, many businesses might opt not to follow the notice requirement, using the Texas ruling as a defense and knowing that the FTC has limited enforcement powers, Passerini said.
“The FTC doesn’t have a ton of teeth in this rule,” he said. “You might get a slap on the wrist in terms of an injunction.”
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"Companies Delay Voiding Noncompetes with Fate of Ban Uncertain," by Chris Marr and Khorri Atkinson was published in Bloomberg Law on July 31, 2024.
