Celebrating Over 75 Years of Serving Nevada’s Legal, Business, Government, and Civic Communities
Status of FTC Ban on Noncompetition Agreements
Current status of the FTC’s Final Rule: The FTC final rule banning most non-compete agreements was set to go into effect on September 4, 2024, but on August 20, 2024, a federal district judge in the Northern District of Texas granted summary judgment and set aside the FTC’s final rule, ordering that it shall not be enforced. See Memorandum Opinion and Order Ryan LLC v. Federal Trade Commission (Case No. 3:24-cv-00986). On October 18, 2024, the FTC filed a notice of appeal of the decision to Fifth Circuit Court of Appeals. In another challenge to the rule, a Pennsylvania judge tentatively sided with the FTC in July 2024, before the plaintiff dropped the suit in October. On September 24, 2024, the FTC also appealed a Florida order granting a preliminary injunction to the Eleventh Circuit in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-00316-TJC-PRL (M.D. Florida). That court did not issue a nationwide stay of the final rule. The court issued a limited, plaintiff-specific injunction for challenger Properties of the Villages Inc. POV continued to defend that ruling in its opposition brief on January 16, 2025. On March 7, 2025, the FTC filed motions in the Fifth Circuit and Eleventh Circuit asking the courts to hold their reviews of two challenges to the ban in abeyance for 120 days in order for the FTC to “reconsider its defense of the challenged rule.” After 120 days, the agency says, it would update the courts in status reports. According to a March 11 article in Law360, the plaintiffs in the cases do not oppose the motions.
The FTC’s ban is meant to diminish restraint on trade and encourage competitive conditions and innovation. Employers can still protect their confidential and proprietary information through trade secret laws and confidentiality/non-disclosure agreements.
Described below is the FTC’s Final Rule, litigation history of the FTC’s Final Rule, and status of non-competition provisions in Nevada.
- Summary of FTC’s Final Rule
- Non-competition provisions in Nevada
- Litigation history of FTC’s Final Rule
1. Summary of FTC’s Final Rule
On April 23, the Federal Trade Commission issued its final rulemaking, after a 3-2 vote along party lines, that is poised to render all but a narrow scope of noncompetition agreements void as “unfair method[s] of competition” under Section 5 of the FTC Act. That final rule defines a noncompetition agreement as one that covers any condition of employment imposing prohibitions and penalties barring workers from “(A) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (B) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
The ban would apply not only to employees, but also independent contractors, externs, interns, volunteers, apprentices, sole proprietors who provided services to a person, and workers who are hired by one party to work for another (e.g., staffing agencies). However, the term “worker” does not include a franchisee in a franchisor/franchisee relationship (although employees of franchisees are covered) and the ban does not apply to a noncompetition agreement in connection with the sale of a business entity. Section 910.3(b) of the final rule also includes an exception for existing causes of action, “where a cause of action related to a non-compete clause accrued prior to the effective date.” The FTC added this exception to respond “to concerns that the final rule would apply retroactively by extinguishing or impairing vested rights acquired under existing law prior to the effective date.” Final Rule at p. 343.
The final rule does not take effect until 120 days after it is published in the Federal Register. Once final, and if it survives legal challenges already underway by the U.S. Chamber of Commerce and others, noncompetition agreements will be banned going forward, and will render any current noncompetition agreement void, except for senior executives (defined as earning more than $151,164 per year and who are in a “policy-making position,” which is also defined in the final rule). Once effective, the final rule will require employers to provide notice to workers that they will not enforce a noncompetition agreement against them in the future. The FTC has provided employers model language for that notice, but for now the rule is not yet effective and no notice obligations have been triggered. The federal register indicates the final rule is scheduled to be published on May 7, 2024. Absent a stay, or other court action, this means the rule would go into effect on September 4, 2024.
2. Non-competition provisions in Nevada
In 2019, Nevada narrowed the scope of non-competition provisions when the Legislature banned non-competition restrictions for workers paid solely on an hourly basis, exclusive of any tips and gratuities. NRS 613.195(3). However, the Federal Trade Commission’s ban — set forth in a final rule set to become effective on September 4, 2024 — is intended to have a broader reach as to all employees and includes a prohibition on all new noncompetition agreements with senior executives, but will allow existing noncompetition agreements to remain in place as to these senior executives. The ban does not prohibit employers from enforcing non-compete clauses if the cause of action accrued prior to the effective date, nor does it prevent certain non-compete clauses between a buyer and seller arising from a sale of a business entity.
Given the dialogue that the FTC’s final rule has sparked and pending litigation challenging the final rule, McDonald Carano will be closely watching developments, including the 2025 Nevada Legislative session that may give rise to proposals aimed at mirroring the FTC’s ban or impose additional limitations. However, if effective, the FTC’s final rule makes clear that it “shall supersede” all state laws, regulations, orders, and interpretations of them that is not consistent with the FTC’s rule’s requirements. Therefore, Nevada could still impose requirements and restrictions that provide greater “protections” than those provided by the FTC’s final rule; however, the final rule’s scope leaves little left to regulate.
3. Litigation History of FTC’s Final Rule
On July 3, 2024, a federal judge entered a preliminary injunction that temporarily prevents the Federal Trade Commission from enforcing its near total ban on noncompetition agreements against plaintiff Ryan LLC, a tax preparation company, and the plaintiff-intervenors. However, the district judge declined to issue a nationwide injunction that would delay implementation of the final rule—due to become effective on September 4. Ryan LLC, as well as other plaintiff-intervenors like the U.S. Chamber of Commerce, have alleged that the FTC lacks substantive rule making authority to issue a rule with respect to unauthorized methods of competition. The district court agreed and ruled that plaintiffs are likely to succeed on the merits of their claims. The court is expected to issue a merits disposition by August 30, but because the preliminary injunction is limited to Ryan LLC, the final rule will become effective September 4 unless the Ryan court or another court issues a nationwide injunction, for example ATS Tree Service, LLC v. FTC pending in the Eastern District of Pennsylvania which scheduled a preliminary injunction hearing on July 10, 2024. On July 23, 2024, the court declined to grant a preliminary injunction staying the non-compete Final Rule, concluding that the challenger of the rule had failed to show irreparable harm to support an injunction and was unlikely to win on the merits of its case that the FTC lacks statutory or constitutional authority to impose the ban. On October 4, 2024, ATS voluntarily dismissed its lawsuit against the FTC, ending the litigation without a ruling on the merits by the Eastern District of Pennsylvania. ATS ended its case subsequent to a federal district judge in the Northern District of Texas granting summary judgment on August 20, 2024, and setting aside the FTC’s final rule, ordering that it shall not be enforced nationwide. (Ryan LLC v. Federal Trade Commission).
On May 6, the U.S. District Court for the Eastern District of Texas (“EDTX”) entered an order 4891-0430-8154, v. 1 staying litigation that the U.S. Chamber of Commerce commenced in its challenge to the FTC’s final rule. Previously the EDTX set an expedited briefing and hearing schedule, but stayed the case based on the “first to file” rule because a different plaintiff filed a lawsuit challenging the final rule on identical grounds one day earlier. That case, Ryan, LLC v. FTC, No. 3:24-cv-00986, is pending in the U.S. District Court for the Northern District of Texas. The Ryan court has also expedited briefing schedule. On May 30, U.S. District Judge J. Campbell Barker dismissed without prejudice the U.S. Chamber of Commerce’s duplicate suit because the Chamber joined the first-filed suit as a plaintiff intervener.
About McDonald Carano
In 2024, McDonald Carano celebrated its 75ᵗʰ Anniversary of serving Nevada’s legal, business, government, and civic communities. More than 60 lawyers and government affairs professionals serve Nevada, national, and international clients from our offices in Reno, Las Vegas, and Carson City. McDonald Carano provides transactional, litigation, regulatory, and government affairs services to startups, corporations, private companies, trade associations, nonprofits, public entities, high-net-worth individuals, and family offices throughout Nevada. We are deeply committed to supporting local communities by volunteering our time, resources, and services, including pro bono legal services, to nonprofit organizations, charitable foundations, and public service entities. We are proud to be your Nevada law firm since 1949.
Media Contact
Mark Buckovich
[email protected]
702.257.4559
You have chosen to send an email to McDonald Carano. The sending or receipt of this email and the information in it does not in itself create an attorney-client relationship. If you are not already a client, you should not provide us with information that you wish to have treated as privileged or confidential without first speaking to one of our lawyers. If you provide information before we confirm that you are a client and that we are willing and able to represent you, we may not be required to treat that information as privileged, confidential, or protected information, and we may be able to represent a party adverse to you.
I have read this and want to send an email.