By Lamb McErlane attorneys Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

On April 26, 2024 and May 16, 2024, we posted articles on the Federal Trade Commission’s (“FTC”) final rule prohibiting non-compete agreements (“Final Rule”). As June comes to an end, we would like to bring the Final Rule to the forefront of everyone’s mind in light of the legal challenges related thereto.

By way of background, effective September 4, 2024 (the “Effective Date”), the Final Rule (also known as the Non-Compete Clause Rule) makes it unlawful for a person covered thereunder (i) to enter into or attempt to enter into a non-compete clause, (ii) to enforce or attempt to enforce a non-compete, and (iii) to represent that the worker is subject to a non-compete clause (provided that the worker is not a senior executive, as defined by the Final Rule, that entered into the non-compete clause prior to the Effective Date). While the Final Rule is subject to some exceptions, it is anticipated to impact approximately 30 million employees across the nation, unless expressly overturned.

Thus far, three cases have been filed that challenge the Final Rule and seeking a stay of the Effective Date. Two cases (one of which was dismissed) were filed in Texas on April 23^rd and 24^th. See Ryan v. Federal Trade Commission, USDC ND Tex. No. 3:24-cv-00986. On May 7^th, Judge Brown denied Ryan’s request for expedited briefing and injunction and scheduled a hearing, if one would be required, for June 17, 2024. However, on June 13^th, Judge Brown decided that oral argument was not required and took the hearing off-calendar. Now, Judge Brown will decide the motion based on papers submitted by the parties.

The third case was filed and is pending in the Eastern District of Pennsylvania on April 25^th. See ATS Tree Services, LLC v. Federal Trade Commission, USDC ED Penn. No. 2:24-cv-01743. ATS Tree Services filed a motion for preliminary injunction on May 14^th seeking a stay of the Effective Date, and a response was filed on June 4^th. If a hearing is deemed necessary, it is expected to be held on July 10^th, with a decision expected on July 23^rd.

With decisions expected to be made in July, employers and employees will have a short period of time to prepare for compliance with the Final Rule in the event it is upheld. Employers should ensure to take the following steps to prepare.

1. 1. Ensure there exists enforceable agreements with employees to protect trade secrets, confidential information, and key customer, vendor and employee relationships.
   2. Review existing agreements to ensure they contain appropriate severability clauses that maintain the agreement even if the noncompete section is rescinded or rendered unenforceable by operation of law.
   3. Compile a list of current and former employees that notices would need to be sent to in the event the Final Rule is upheld.

Employees and employers should pay close attention to the decisions made in July to assess how the outcome might impact them. We will continue to post updates, so stay tuned for more!

If you have any questions or if we may be of further assistance regarding compliance with the Final Rule, or other health law matters, please feel free to contact Bill Kalogredis, Esq. or Sonal Parekh, Esq.

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Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for 50 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., is an associate at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.

*This alert is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic, any health care matter, or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.