As an update to our continuing monitoring of the FTC Federal Trade Commission’s (FTC) non-competition ban, on August 20, 2024, the US District Court in the Northern District of Texas issued a monumental ruling in Ryan LLC, v. Federal Trade Commission[1] granting Plaintiffs’ Motion for Summary Judgement, and ultimately decided to set aside the FTC’s non-compete rule banning non-compete agreements. In the 27-page opinion, Judge Ada E. Brown explained her finding that the FTC lacked statutory authority to issue the non-compete ban, which was set to take effect on September 4, 2024. In reaching her decision, Judge Brown reasoned that the “FTC lacked requisite statutory authority to promulgate the Non-Compete Rule and that the Rule is arbitrary and capricious.” The Court ultimately found that “the FTC’s promulgation of the Rule is an unlawful agency action” More specifically, the Court found that the FTC’s arguments that it was permitted to create the rule by Section 6(g) of the FTC Act lacked merit. This case is significant in light of the recent United States Supreme Court decision in Loper Bright Enterprises et al. v. Raimondo, where the Court overruled the long-standing Chevron doctrine that instructed courts to defer to an agency’s permissible interpretation of ambiguous statutes.
The FTC will appeal the Ryan decision, but that appeal will be prosecuted before the United States Court of Appeals for the Fifth Circuit, which is known to be the most conservative circuit court in the United States.
In a separate action earlier this month, another federal judge temporarily blocked the FTC rule banning non-compete agreements, marking the second time a judge has ruled against the ban. The case was brought in the Middle District of Florida by Properties of the Villages, a major real estate developer, arguing that the FTC overstepped its authority by imposing the non-compete ban without explicit congressional approval. Judge Timothy Corrigan sided with the plaintiff (Properties of the Villages) and held that the FTC did not have the authority to issue such a broad non-compete ban. During the hearing, Judge Corrigan highlighted that the rule touches on “extraordinary economic and political significance” issues that Congress did not explicitly authorize the FTC to address. He referenced the “major questions doctrine,” a legal principle increasingly invoked by conservative judges, including the U.S. Supreme Court, which asserts that federal agencies can only enact regulations with widespread societal effects when Congress provides clear and specific authorization.
The ruling highlights ongoing tensions between regulatory agencies and businesses over labor market controls. Non-compete agreements, which prevent employees from working for competitors after leaving a company, have been the subject of growing criticism for stifling competition and limiting worker freedom. The FTC’s proposed ban would apply broadly across industries, potentially impacting millions of employment contracts. However, in the wake of Loper Bright, courts are increasingly scrutinizing whether the agency has the power to enforce such a sweeping regulation. For now, employers can breathe easy knowing that in most instances, non-competition agreements will be implemented, if state law allows it. However, we anticipate a series of appeals to follow these rulings, and the last word will ultimately come from the United States Supreme Court.
[1] Civil Action No. 3:24-CV-00986-E
