Although many dealers are subject to state laws that ban non-competes for certain employees, dealerships nationwide should continue to prepare as if the FTC’s Ban on Non-competes will go into effect
July 17, 2024
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
In May 2024, we wrote an article explaining that the FTC promulgated a final rule banning all noncompetition agreements for employees, including senior executives. Senior executives are employees who earn more than $151,164 per year and are in policy-making positions. At the end of that article, we told you that we would notify you of any updates.
The U.S. District Court for the Northern District of Texas in Ryan LLC v. Federal Trade Commission issued a preliminary injunction staying the FTC’s rule banning post-employment noncompete agreements for the parties in the case. This ruling temporarily restricts the FTC’s power to implement and enforce the Noncompete Rule against the named parties in the case. It is important for dealerships to note that this decision does not apply beyond the plaintiffs of the Ryan case. In other words, the preliminary injunction was not issued by the court on a nationwide basis, but rather, the preliminary injunction is only applicable to the named parties of the case.
Despite this preliminary injunction in Ryan only applying to the plaintiffs in that case, it signals that the Rule may be disfavored by the courts. The Ryan case is still in the early stages of litigation. Additionally, there is currently a pending case in the Eastern District of Pennsylvania that is set for July 23, 2024, on whether to grant a preliminary injunction to stay the Noncompete Rule. Over the next month, more employers may file lawsuits attempting to enjoin the Noncompete Rule.
Although many dealers are subject to state laws that ban non-competes for certain employees, dealerships nationwide should continue to prepare as if the FTC’s Ban on Non-competes will go into effect on September 4th, 2024. Dealers need to determine which employees have noncompete clauses and send notice to those employees, other than senior executives, that those clauses are unenforceable as of September 4, 2024, if the Rule goes into effect. Those notices should be conditioned on the Rule going into effect. If the Rule goes into effect on September 4, 2024, dealers should also not enter into noncompete agreements with any employees. If dealers wish to have NDAs or non-solicitation agreements, they need to be carefully crafted so that they do not function to prevent employment after the employee leaves the dealership, and thus be considered a non-compete. Likewise, if you have an agreement for repayment for training or courses from an employee who departs (i.e., technician), while the recoupment of what you actually paid for that employee’s training is permissible, any such agreement should be carefully drafted so that it does not appear as a non-compete or prevent that employee from seeking work in his or her trade.