noncompetition

Nationwide Injunction

On August 20, 2024, Judge Ada Brown of the United States District Court for the Northern District of Texas granted summary judgment for the plaintiffs in Ryan LLC v. FTC, preventing the FTC from enforcing its proposed rule banning almost all non-compete clauses in employer agreements. (Click here for the opinion.) The rationale for Judge Brown’s decision was consistent with her prior ruling on plaintiffs’ motion for a preliminary injunction (described here): the FTC does not have substantive competition-related rulemaking authority and the proposed non-compete rule was arbitrary and capricious. However, unlike Judge Brown’s preliminary injunction order, which was limited to the named plaintiffs, her summary judgment order states that the proposed rule “shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.” Applying the plain text of § 706(2) of the APA, Judge Brown held that the proper remedy after concluding that the non-compete rule was in excess of the FTC’s statutory authority and arbitrary and capricious was to “set aside” the rule. According to the opinion, “setting aside agency action under § 706 has ‘nationwide effect,’ is ‘not party-restricted,’ and ‘affects persons in all judicial districts equally.” As a result, the order prohibits the FTC from enforcing the proposed non-compete rule on a nationwide basis.Continue Reading Texas District Court Prohibits the FTC from Enforcing Its Non-Compete Ban Nationwide

Since 2020, with the adoption of Washington state’s non-compete statute (Chapter 49.62 of the Revised Code of Washington (“RCW 49.62”)), Washington has imposed significant restrictions on employer use of non-compete agreements with employees and independent contractors, permitting such agreements only subject to certain statutory and common-law requirements, including without limitation, a minimum annual earnings threshold (the 2024 limits are $120,559.99 for employees and $301,399.98 for independent contractors), and a Washington forum for any disputes.

Now, Senate Bill 5935 (“SB 5935”) – which takes effect on June 6, 2024 – amends the non-compete statute to further restrict the use of non-compete provisions and expand the types of agreements that may be considered non-competes. As a result, employers will need to take quick action to review their employment agreements and hiring processes to ensure compliance with the new law.

However, as discussed in our Covington Alert, on April 23, 2024 the Federal Trade Commission issued a final rule purporting to ban the use of non-competes with most U.S. workers.  The FTC Rule – should it become effective – would supersede inconsistent state laws.  The earliest the FTC Rule would take effect is late August 2024, and pending legal challenges may result in court orders that could delay or stay enforcement of the FTC Rule. Accordingly, employers with workers in Washington State should take steps to comply with SB 5935 before it takes effect on June 6, 2024.  Employers should also consider consulting with employment and executive compensation counsel for assistance with navigating the evolving non-compete landscape.

Here is an overview of the key changes under SB 5935:Continue Reading Changes to WA’s Non-Compete Law Require Employers to Take Action

Over three decades ago, in Loral Corp. v. Moyes, a California Court of Appeal held that employee non-solicitation agreements, which bar former employees from soliciting the employer’s existing employees, could be enforceable.  In 2008, the California Supreme Court in Edwards v. Arthur Andersen LLP held that non-competition agreements are unlawful restraints on trade and void under California Business & Professions Code section 16600 (with limited statutory exceptions), but left open whether employee non-solicitation provisions amounted to unlawful restraints on trade.  But recently, in a span of just months, two different courts in California have ruled that employee non-solicitation provisions are invalid under section 16600.
Continue Reading Rulings Question the Enforceability of Employee Non-Solicitation Covenants in California

On October 1, 2018, the Massachusetts Noncompetition Agreement Act (the “Act”) came into effect, creating several new requirements for noncompetition agreements between employers and service providers based in Massachusetts. The new law does not impact agreements entered into before October 1; however, going forward, employers should evaluate when to seek a noncompetition agreement from a service provider and should update any form agreements to comply with the Act’s requirements. In this post, we highlight five considerations to help guide employers as they revisit their practices for Massachusetts workers.
Continue Reading New Rules for Noncompetition Agreements in Massachusetts