Part 1: How Should Employers Handle Current Noncompete Disputes with Departing Employees?

This three-part blog series is intended to identify and respond to three of the most frequently posed questions by employers in response to the Federal Trade Commission’s (FTC) Final Noncompete Rule (the “Noncompete Rule”).

We previously reported on the Federal Trade Commission’s (FTC) Noncompete Rule and the currently pending litigation challenging the Noncompete Rule.  In one of those cases, which was brought in the United States District Court for the Northern District of Texas and consolidated with the lawsuit filed by the United States Chamber of Commerce, the plaintiffs filed a Motion for Stay and Preliminary Injunction. The court has indicated that it intends to rule on that motion by July 3, 2024.

If the court does not enter an injunction or stay order, the Noncompete Rule is scheduled to go into effect on September 4, 2024.  The pending effective date has led employers to ask the first of three frequently asked questions: “How should we handle current noncompete disputes with departing employees?”  The short answer is: At the present time and as long as it is consistent with applicable state law, employers may continue to enforce noncompetes with their departing employees.    

If a court does not enjoin or stay the Noncompete Rule, and it goes into effect on September 4, 2024 (or sometime thereafter), one exception to the Noncompete Rule is that it does not affect pending litigation where the cause of action related to a noncompete accrued prior to the Noncompete Rule’s effective date. Thus, employers can seek court intervention relating to a noncompete so long as the breach occurred prior to the effective date of the Noncompete Rule.

Stay tuned for Part 2 of the series.

Gianna Dano, a Summer Associate in Epstein Becker Green’s Newark office (not admitted to practice) contributed to the preparation of this piece.

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