Preparations for the FTC Final Rule were uncertain, however, because two legal challenges to the FTC were immediately brought in an attempt to block the FTC Final Rule from being enacted: In one lawsuit, a court in Texas granted a preliminary injunction to the plaintiffs only, which prevented the FTC Rule from being enacted with respect to those specific businesses. In the other lawsuit, a court in Pennsylvania ruled the opposite—denying a stay of the FTC Rule from being enacted.
The Texas court promised a full ruling before Aug. 30, 2024. On Aug. 20, 2024, that ruling was issued, and a nationwide injunction against the enactment of the FTC Final Rule was imposed. The court’s reasoning for imposing the nationwide injunction was that the FTC had “exceeded its statutory authority in implementing the rule.” As a result of this ruling, employers may set aside the requirements of the FTC Final Rule for the time being.
Current Status of Non-Compete Agreements
The injunction blocking the FTC Final Rule essentially returns the power to each state to enforce existing non-compete laws at the state level. Non-compete agreements that are reasonably tailored to comply with applicable state law will continue to be enforced. As a result, employers should engage an attorney to review their current agreements with workers to determine if the non-compete provisions comply with applicable state law.
States may have restrictions on the duration of the non-compete as well as the area the non-compete covers. Depending on the nature of the business the non-compete restricts, additional restrictions may apply. Non-competes with healthcare practitioners are, in some states, expressly prohibited. California and Minnesota are examples of states that have largely banned non-competes already. Other states, like Illinois, have codified restrictions on non-competes that apply based on earnings thresholds of the worker.
Finally, some states have codified non-compete restrictions that apply specifically to the healthcare industry. For example, in Pennsylvania, a new law set to go into effect on Jan. 1, 2025, deems non-competes with healthcare practitioners void, unenforceable and contrary to public policy, with few exceptions.
Even if a state has not codified an express restriction on non-competes, case law may inform whether any particular restrictions will be applied to a non-compete that involves healthcare services. Because of the importance of healthcare services to communities, some states will limit non-competes so citizens of that state can access affordable healthcare services.
