A busy month for the Eastern District Court of Texas — and the impact on the rest of us Significant updates on the pending FTC Non-Compete Ban Case and the DOL Salary Increase Case

The Eastern District Court of Texas has shown extremely uncharacteristic restraint in this past month. Despite being handed two different opportunities to reshape American policy in the Federalist Society’s image – opportunities which this Court has not hesitated to seize in the past – the Court has limited their rulings to within Texas’ own state lines.

After shocking the entire legal community by allowing the Department of Labor’s (“DOL”) salary threshold increase to actually take effect nationwide, when they had the authority and demonstrated propensity to send the DOL right back to DC with DOL’s tail between its legs (yet again), the Court just surprised us all once more by allowing the Federal Trade Commission’s (“FTC”) national ban on non-compete agreements to move right along towards enactment. As of this moment, the FTC’s near total ban on non-competition agreements shall take effect right on schedule: September 4, 2024.

Each of these surprise rulings came with exactly one exception: as to the DOL’s salary threshold, the increase shall not apply to employees of the State of Texas, and as to the FTC’s non-compete ban, the ban shall not apply to the particular plaintiffs in Texas who issued the legal challenge. The Eastern District Court of Texas made its displeasure at these new rulemaking attempts clear, and even stated explicitly that they believed both new rules were well outside the scope of each respective Agency’s rulemaking authority. Nevertheless, despite having already issued nationwide injunctions against nigh-identical rules just in the past few years, this time they limited their holdings to the Texas border.

That means that everyone outside of that border (that’s us here in Florida!) must comply with these new rules as scheduled. The salary threshold increase has already taken effect, as you no doubt already knew, but the FTC’s non-compete prohibition is still roughly two months away. That said, much could happen between now and then that could prevent the FTC ban on non-compete agreements from taking effect.

First, there’s a nearly identical challenge to the FTC non-compete ban pending before the District Court of Pennsylvania, which could easily end in an injunction preventing the new rule’s enforcement on a national scale. Next, although the Texas plaintiffs technically prevailed, it is extremely likely they – or third-party plaintiff-intervenors – will appeal the ruling in an attempt to expand the scope to encompass the entire nation. In other words, there remain at least two steep hurdles to the FTC’s non-compete ban ever seeing the light of day, and most of the precedent suggests that the ban will be struck down before it would have otherwise become enforceable.  

And yet, we would have said – indeed, we did say – the very same thing about the DOL’s new salary-basis threshold, and this took effect against all odds on July 1, 2024. We’re in real “black swan” territory here, and the best advice we can give is to prepare as if all non-competition clauses will vanish at the stroke of midnight on September 4, 2024. A conservative court striking down the FTC’s proposed ban nationwide remains the most likely outcome to the ongoing legal challenges, but given Texas’ newfound sense of NIMBYism, we may very well end up with a patchwork system, where certain states are willing to enforce non-compete agreements, and others either refuse or even criminalize them, as they do in Colorado. While there’s no doubt about which side of this circuit-split that Florida would land on, this system would still likely allow for remote employees to dodge enforcement by moving across state lines, meaning that Florida employers would still need to contend with the new rules, albeit indirectly.

For our part, we’ve been quietly preparing for a contingency like this for years. If we drafted your non-compete agreements, you’ll note that they also include strong non-solicit and non-acceptance clauses, as well as robust confidentiality / trade secret protections. That means that, even if the non-compete clauses of those agreements do vanish into thin air on September 4, 2024, your most valuable resources – i.e. your clientele and your proprietary business information – should remain as protected as they were on August 31, 2024. Honestly, we’ve found that these alternate restrictive covenants are much more effective than a blanket non-competition clause; suffice to say, courts tend to favor scalpels over sledgehammers, and it is much easier to convince a judge to order someone to stop harassing your individual customers or using your individual trade secrets than it is to convince them that justice requires your former employer’s business to be outright shuttered, lest they hypothetically cost you some impossible-to-determine amount of money at some impossible-to-determine date.

As to the new salary-basis threshold for “white collar” exemptions (i.e. executive, administrative), which took effect on July 1, 2024, and raised the minimum annual salary of such exempt employees from $35,568/year to $43,888/year, and which will increase that threshold to $58,656/year on January 1, 2025 – there are no clever legal alternatives for this one. You will either have to increase affected employees’ salaries to the new minimum thresholds on or before the scheduled raises, or you will have to switch such employees from exempt-salaried status to non-exempt hourly status. 

It’s a bitter pill, we know, but don’t be too hard on the DOL. Unlike some other pipedreams they’ve had in the past, they really did their homework on this one. The math is available online, but the short version is that a $35,568/year salary represents literal poverty in most of the State of Florida – particularly in the greater Sarasota area – so the idea that employees earning that amount are so well-compensated that they simply don’t require any additional pay no matter how many hours they work is objectively disingenuous.  While reasonable minds might disagree about the appropriate solution, there is no good-faith argument to be made in support of the current salary threshold. If you’re feeling (justifiably!) angry about these new developments, direct your ire towards the big-box retail chains that forced the DOL’s hand by labeling every single employee an “assistant manager,” and then scheduling them to work 60+ hours/week for a flat $35,568/year. 

Similarly, as to the non-competition ban, consider redirecting your hate mail away from the FTC and towards the employers who attempted to bind employees to demonstrably ridiculous non-compete clauses where the obvious purpose was to ensure that, if an employee ever left their employ for any reason, they would not be allowed to work anywhere in the country for the next decade or more. Courts have always hated these, so much so that there’s a term-of-art called “blue penciling,” where a court reduces the scope of a non-compete from whatever ridiculous parameters the employer wrote down to the standard 20-mile, 2-year scope. The problem the FTC is trying to solve is that, historically, most employees who were subject to such agreements could not afford to consult an attorney regarding their (limited) enforceability, or in the most severe cases, hire an attorney to defend against malicious, bad faith attempts to enforce an overbroad agreement. As with the new salary thresholds, reasonable minds can absolutely disagree as to the appropriate solution, or whether the FTC’s proposal will cause more harm than good, but in today’s mobile society, hampering the ability for businesses to start or flourish is less than ideal.