Federal Trade Commission Approves New Non-Compete Clause Rule

Well, the FTC is one for two. So far.

On July 3, 2024, a federal judge in the Northern District of Texas partially blocked the new FTC rule banning non-compete agreements from taking effect.

In a 33-page decision, U.S. District Judge Ada Brown, appointed by former President Trump, conducted an exhaustive review of the background and purported powers of the FTC. The Court set forth in some detail the case law regarding the issuance of preliminary injunctions. Judge Brown ultimately held that the proposed rule exceeded the FTC’s statutory authority and was unreasonably broad.

Judge Brown ruled that the named business plaintiffs, which included the US Chamber of Commerce and Ryan LLC, a tax services and software provider based in Dallas with 113 locations across the globe, would suffer irreparable harm if the new rule stood.  In balancing the equities of this case and the public interest, the Court found that issuing a preliminary injunction was appropriate.

However, Judge Brown’s decision was not a total victory for the business plaintiffs. The Judge denied their request to block the rule nationwide, saying it was not clear whether such an order was appropriate.

Judge Brown plans to issue a final ruling by Aug. 30, 2024.  The pending FTC rule will take effect on September 4, 2024.

This decision contrasts with the July 23, 2024, 39-page decision of Judge Kelley Hodge, sitting in the District Court for the Eastern District of Pennsylvania. Judge Hodge, a Biden appointee, also spent a great deal of time in her decision discussing the FTC’s statutory authority and the criteria for issuing injunctive relief.

However, Judge Hodge ruled that the plaintiff, a tree service company with 12 employees, had not met the criteria for the issuance of a preliminary injunction.

Given the assuredness of Judge Brown’s language in her decision, it would not appear that the Northern District of Texas will backtrack and withdraw the injunction against the FTC. Rather, it would seem the only issue for the Court to consider is whether it will issue a nationwide injunction.

We also note that Judge Hodge’s Philadelphia court is part of the Third Circuit, which is generally viewed as a liberal circuit, while Judge Brown’s Dallas court is part of the Fifth Circuit, which is generally viewed as a more conservative circuit. The likelihood of conflicting decisions at the appellate level in these cases is significant.

This is an important issue, for both the FTC’s supporters and those opposing the new regulation. If the conflict among the federal judiciary continues, the case will probably find itself on the Supreme Court docket.

As new information on the status of the FTC non-compete rule litigation becomes available, we will continue to update you on this important issue.

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Update August 23, 2024: Federal Trade Commission Approves New Non-Compete Clause Rule

Two federal judges issued conflicting decisions on the enforceability of the Federal Trade Commission’s proposed rule banning non-compete agreements nationwide.

On August 20, 2024, Judge Ada Brown, sitting in the Northern District of Texas, issued a final ruling that prohibits the FTC from enforcing its new rule. Reiterating the language of the preliminary injunction order, Judge Brown held that (1) the FTC did not have the statutory authority to ban all non-compete agreements across the country, and (2) the rule was “arbitrary and capricious.”

The FTC rule was scheduled to go into effect on September 4, 2024. However, unlike the Court’s preliminary injunction, Judge Brown found that the FTC is now estopped from enforcing the non-compete rule nationwide.

As we noted previously, the District Court in the second case out of the Eastern District of Pennsylvania reached a different conclusion than Judge Brown. That District Court has not yet issued a final ruling.

Lastly, on August 14, 2024, in a third case, the District Court for the Middle District of Florida issued a temporary, limited injunction similar to Judge Brown’s in favor of a real estate company (Property of the Villages, Inc. v. FTC).

It would appear that the FTC’s proposed rule will not be put into effect anytime soon. Also, this issue is likely headed to the Supreme Court.

We will keep you advised of further developments.