Trade Secrets & Employee Mobility

On Spilling Secrets, our podcast series on the future of non-compete and trade secrets law, our panelists delve into the implications for employers following the recent blockage of the Federal Trade Commission’s (FTC’s) non-compete ban.

On August 20, 2024, the U.S. District Court for the Northern District of Texas invalidated the FTC’s non-compete ban, deeming it arbitrary and capricious and beyond the scope of the agency’s statutory authority.

In this episode of Spilling Secrets, Epstein Becker Green attorneys Peter A. Steinmeyer, Erik W. Weibust, and Paul DeCamp tell us more about the court’s decision to block the ban, what legal challenges remain, and the key considerations for employers moving forward. 

Last summer, as discussed in this blog, the Georgia Court of Appeals issued a decision in N. Amer. Senior Benefits, LLC v. Wimmer that presented potential challenges for employers seeking to enforce employee non-solicitation provisions.  That case held, pursuant to Georgia’s Restrictive Covenants Act, OCGA § 13-8-50 et seq., that a restrictive covenant extending beyond the end of an individual’s employment, and undertaking to prohibit the individual from soliciting former coworkers, is unenforceable if it lacks an explicit geographic limitation. 

In a September 4, 2024 Opinion, the Georgia Supreme Court overruled that decision.  The relevant statutory provision in both cases is OCGA § 13-8-53(a), which permits enforcement of restrictive covenants “so long as such restrictions are reasonable in time, geographic area, and scope of prohibited activities.”  The Supreme Court held that “nothing in the text of subsection (a) mandates that a restrictive covenant contain an explicit geographic term, nor does subsection (a) prohibit a covenant’s geographic area from being expressed in implied terms.”

The Supreme Court continued: “In short, the plain text of subsection (a) requires with respect to geographic restrictions on competition that any such restriction be reasonable, regardless of whether the restriction is expressly stated or implied.”  The Court also noted that its reading of OCGA § 13-8-53(a) comports with the Restrictive Covenants Act’s “more permissive and flexible approach to restrictive covenants.” 

The Connecticut Supreme Court recently held that continued employment may constitute sufficient consideration for noncompete agreements under Connecticut law, but left unclear the parameters of that holding.

In Dur-A-Flex, Inc. v. Dy, Dur-A-Flex, a commercial flooring company, hired Samet Dy as a research chemist in 2004. Years later, in 2011, Dur-A-Flex required Dy to execute a noncompete agreement as a condition of continued employment. The noncompete agreement prohibited Dy from performing any services for a competitor for twenty-four months after his employment terminated. In 2013, Dy resigned and Dur-A-Flex sought to enforce the noncompete. The trial court held that the noncompete was unenforceable because continued employment can never constitute sufficient consideration for a noncompete agreement.

On appeal, the case was transferred from the appellate division to the Connecticut Supreme Court. In a July 2, 2024 decision, the Supreme Court reversed the trial court, which had relied on a 2014 court of appeals decision entitled Thoma v. Oxford Performance Materials, Inc., to hold that “a party giving nothing more than the status quo of continuing employment … offers no consideration [in] exchange for his promise and the promise is, therefore, unenforceable.” The Supreme Court agreed with Dur-A-Flex that Thoma was distinguishable and that a 1934 Connecticut Supreme Court decision called Roessler v. Burwell was controlling. The Court held that under Roessler, “a promise of indefinite, continued employment for an at-will employee in exchange for the employee’s promise not to compete constitutes adequate consideration to form an enforceable agreement.”

As featured in #WorkforceWednesday®: This week, we’re examining the repercussions for employers of a recent court decision that set aside the Federal Trade Commission’s (FTC’s) nationwide non-compete ban:

On August 20, 2024, the U.S. District Court for the Northern District of Texas blocked the FTC’s ban on non-compete agreements nationwide. What does this mean for employers?

Epstein Becker Green attorney Peter A. Steinmeyer tells us what employers should be doing now and outlines the implications of this decision on existing and future non-compete agreements.

Ten days ahead of her self-imposed deadline, Judge Ada Brown of the Northern District of Texas issued a memorandum opinion and order granting the plaintiffs’ motions for summary judgment, setting aside the Federal Trade Commission’s forthcoming Noncompete Ban nationwide, which was set to go into effect on September 4, 2024. In other words, as we predicted, the FTC’s Noncompete Ban is dead nationwide unless and until a Circuit Court of Appeals or the Supreme Court of the United States revives it.  

Judge Brown granted plaintiffs’ summary judgment motion as to every claim under the Administrative Procedures Act (APA) and the Declaratory Judgment Act (DJA), ruling that the FTC exceeded its statutory authority when it issued the Noncompete Ban and that the Noncompete Ban is arbitrary and capricious.

Judge Brown set the tone for her decision by quoting the Supreme Court’s recent opinion in Loper Bright Enters. v. Raimondo, 144 S.Ct. 2244, 2261 (2024), where the Court overruled the principle of Chevron deference established in Chevron U.S.A., Inc. v. Nat’l Res. Def. Council, Inc. (1984), stating: “Congress in 1946 enacted the APA as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.”

After what must have been a grueling two-hour and 52-minute oral argument on the merits of a challenge to the FTC’s Final Rule banning noncompetes, Judge Timothy Corrigan of the United States Court for the Middle District of Florida issued a ruling from the bench in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316 granting the plaintiff’s Motion for Stay of Effective Date and Preliminary Injunction.  Importantly, as with the decision in the Northern District of Texas, the court limited the scope of the preliminary injunction to the named plaintiff only.

Judge Corrigan’s swift ruling granting the motion to stay at the completion of the hearing is a welcome decision given the looming September 4, 2024 effective date of the FTC’s noncompete ban. While the court rejected two of plaintiff’s arguments as to success on the merits, the court held that the FTC exceeded its authority under the major questions doctrine.

In particular, the court quoted Supreme Court precedent that “common sense, informed by constitutional structure, tells us that Congress normally intends to make major policy decisions itself, not leave those decisions to agencies[.]”  Judge Corrigan considered the “huge economic impact” the Final Rule would have in transferring value from employers to employees, along with the Final Rule’s political significance preempting state competition laws.  In finding that the plaintiff established a likelihood of success on the major questions doctrine, the Florida court has established a split from the Eastern District of Pennsylvania, which ruled in July that the FTC’s issuance of the Final Rule did not implicate the major questions doctrine.   

On Spilling Secrets, our podcast series on the future of non-compete and trade secrets law, our panelists discuss the ongoing legal challenges to the Federal Trade Commission’s (FTC’s) nationwide non-compete ban and what the future may hold for employers:

On July 23, 2024, a federal judge in Pennsylvania denied a motion to enjoin the FTC’s non-compete ban. This ruling is in direct opposition to one by a district court in Texas that enjoined the ban in early July.

In this episode of Spilling Secrets, Epstein Becker Green attorneys Peter A. Steinmeyer, A. Millie Warner, and Paul DeCamp look into their crystal ball and make their own predictions for how the FTC’s non-compete ban may or may not survive in the courts.

On Spilling Secrets, our podcast series on the future of non-compete and trade secrets law, our panelists discuss the current state of the Federal Trade Commission’s (FTC’s) nationwide non-compete ban amid ongoing legal challenges:

The FTC’s ban on non-competes will go into effect on September 4, 2024, but legal challenges remain. So, how can employers prepare?

In this episode of Spilling Secrets, Epstein Becker Green attorneys Peter A. Steinmeyer, Erik W. Weibust, and Paul DeCamp tell us more about how the U.S. Supreme Court’s overruling of the Chevron doctrine might affect the FTC’s ability to regulate non-competes. They also discuss a Texas court’s preliminary injunction against the FTC’s non-compete ban* and how various legal challenges have led to a somewhat anticlimactic atmosphere in the employment landscape related to the ban.

*On Tuesday, July 23, after this episode was recorded, a federal judge in Pennsylvania reached the opposite conclusion and declined to temporarily halt the FTC’s non-compete ban.

On July 23, 2024, the United States District Court for the Eastern District of Pennsylvania issued an order in ATS Tree Services, LLC v. FTC, Case No. 2:24-cv-01743-KBH, denying Plaintiff ATS Tree Services, LLC’s (“ATS”) motion for preliminary injunction to enjoin the FTC’s Noncompete Ban which, if not enjoined by other courts, will go into effect on September 4, 2024.

Unlike in Ryan LLC v. FTC, Case No. 3:24-cv-00986-E pending in the United States District Court for the Northern District of Texas, which was discussed in our earlier post, where the plaintiffs include the U.S. Chamber of Commerce, which represents companies employing hundreds of thousands, if not millions, of employees, and Ryan LLC, an employer with thousands of employees nationwide, ATS is a tree-care company that requires each of its 12 employees to enter noncompete agreements restricting their ability to work for ATS’s competitors within a specific geographic area for a year after they leave ATS’s employ.[1] ATS filed a motion for preliminary injunction to enjoin the FTC’s rule banning nearly all noncompetes (the “FTC’s Noncompete Ban”), which would invalidate ATS’s noncompetes on September 4, 2024 if not enjoined.

On July 17, 2024, Governor Josh Shapiro approved Pennsylvania’s first statute imposing limitations on the use of noncompetes in the state. The Fair Contracting for Health Care Practitioners Act (the “Act”) prohibits the enforcement of certain noncompete covenants entered into by health care practitioners and employers. Here are the key points of the Act:

• The Act’s effective date is January 1, 2025.
• Subject to certain exceptions, a “noncompete covenant” entered into after January 1, 2025 is “deemed contrary to the public policy and is void and unenforceable by an employer.”
• A “noncompete covenant” is defined as an “agreement that is entered into between an employer and a health care practitioner in this Commonwealth which has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients, either practicing independently or in the employment of a competing employer after the term of employment.”