Uncertainty over FTC’s non-compete rule as US election approaches

As we reported last week, the US presidential election on 5 November has created a lot of uncertainty for employers, as it usually does at the end of the 4-year cycle. Some of Biden’s employment-related legislation, which is currently making progress may, or may not, become law by 5 November and, even if it does become law, a Trump administration could reverse it very quickly. That uncertainty is a problem if you are a business with a presence in the US trying to plan ahead.

We flagged three key areas affected by that uncertainty, namely the FTC’s so-called ‘final rule’ which would effectively ban most post-employment non-compete agreements between employers and their workers. Also, the possible extension of mandatory overtime to an estimated 4 million US workers. Also, thirdly, the expansion under the Biden administration of protected concerted activity where two or more employees act together to improve the terms and conditions of their employment. Last week US lawyer, Scott Le Blanc, from law firm Husch Blackwell in Wisconsin talked to programme about protected concerted activity and why he is advising his clients to take a ‘wait and see’ approach rather than making changes to their policies and procedures at this stage. 

In this programme, and the next, we’ll consider the other two areas starting with the FTC’s final rule. The background is that earlier this year the Federal Trade Commission voted to adopt the “Non-Compete Clause Rule” – or the “Final Rule” as it’s called – which will prohibit most existing non-compete clauses in employment contracts, except those for ‘senior executives’. The rule will also ban future non-competes, including for senior executives, with some limited exceptions. The rule is due to take effect on 4 September but it is very controversial and there are already a number of legal challenges which may, at the very least, delay that implementation date. On top of that uncertainty there is the prospect of a Trump administration overturning the rule if the election goes their way. 

This is a big news story in the US and companies right across the country with employers concerned about how to protect the business in the event the rule becomes law, and sticks. Scott LeBlanc and his employment team at Husch Blackwell are advising clients to take a ‘wait and see approach’ on this as he told me on our call:

Scott Le Blanc: “So, I think the last time that you and I talked about this was back in January 2023, maybe, and since then the way that the rulemaking process goes with the FTC is that they put out a rule, they accept comments on that rule from the general public, they address those comments, and then they put out a final rule which has an implementation date at some point in the future. So that's the process that they've been going through ever since we first announced that initial rule back in January 2023. The final rule came out a few months ago and it is, right now, scheduled to go into effect on September 4th of this year but the reason that we're telling clients to take a wait and see approach is the chances are quite good that that rule will not go into effect in September, if at all, for one main reason which is that the rule has been challenged in court by a plaintiff’s group in a Texas District Court. The basis of that challenge is that the Federal Trade Commission doesn't have the authority to pass a rule with that sweeping effect as the non-compete rule that they've proposed. So the Texas District Court is right now looking at the arguments made by both sides in this case and the first question in that case is whether or not they're going to grant a preliminary injunction against the rule going into effect. If that happens that would stop the rule, at the very least, from going into effect in early September. We're expecting to see a decision on that injunction probably around our 4 July holiday, I think July 3rd actually is when we expect a decision from the District Court on the injunction decision. So if there is an injunction the first question is going to be what the scope of that injunction is in rules of national importance in the past, particularly ones that have been filed in these Texas district courts which seems to be a popular place for people who want to challenge federal agency rules. So it would not be surprising for the injunction to be a nationwide injunction. It doesn't have to be a nationwide injunction but it wouldn't be surprising at all for the judge to say because it's an issue of national import, and because everything that is sort of intertwined, that I'm going to issue a nationwide injunction in this case. If there's not an injunction we would continue moving forward unless and until someone files a case in a different court in which they were able to obtain an injunction. So it's possible if we don't hear about an injunction being entered by July 3, then that rule is going to go into effect in September. Now, an injunction is only the first step in the process. Even if the plaintiffs that are challenging the rule on this case don't get an injunction it doesn't mean that their case is over. It would mean that they would go to court and be able to make their arguments about whether or not the FTC has this authority and it's ultimately possible, although I don't know that I would call it probable, that a court could decline to issue an injunction but, at the end of things, make the determination that the FTC doesn't have the ability to be able to put together this rule and then at that point the rule would not go into effect. So it's possible that we could have a situation where the rule actually goes into effect in September but at some point in the future it is struck down by the court, but I think the more probable course of events is that we're going to have an injunction entered into in July which is going to stop the rule from going into effect temporarily and that September date is going to be pushed out into the future and then we're going to have to wait and see again, at the very end of things, whether or not that rule is ultimately struck down.”

Joe Glavina: “What if a Trump administration does come into power after the election, Scott? Presumably, the rule would be overturned in a flash?

Scott Le Blanc: “Right, so that's the other ‘x factor’ here, which is the election that's coming up in November and you're absolutely right, Joe, if a Trump administration comes into effect I think the chances are, I won't say 100%, but near 100%, that he'll bring his people into the Federal Trade Commission and they'll scuttle this rule in pretty short order. We saw that happen in 2016 with some of the rules of the Department of Labor put out, and we could talk about that in a second, but basically if Trump were to come to power and he put his people into these federal agencies they would have the ability to step away from these rules pretty quickly after he gets into office.”

Scott went on to talk about another area of uncertainty which is Joe Biden’s plan to extend mandatory overtime pay to an estimated 4 million salaried workers. That would require employers to pay overtime premiums to workers who earn a salary of less than $1,128 per week, or about $58,600 per year, when they work more than 40 hours in a week. We’ll be covering that next week so do join us for that.

LINKS
- Link to HRNews programme: ‘Employers taking ‘wait and see’ approach before US presidential election’