Tim Resch, Samuels Yoelin Kantor LLP
In August, the U.S. District Court for the Northern District of Texas struck down the FTC’s non-compete agreement ban nationally in Ryan, LLC v. Federal Trade Commission. In the ruling, the court held that the FTC exceeded their statutory authority and that the Administrative Procedure Act (APA) required that the regulations be found unlawful and set aside. The original rule banning non-compete agreements was scheduled to become effective September 4, 2024. The FTC will be appealing the District Court’s ruling in the U.S. Court of Appeals for the Fifth Circuit. Opponents of the rule view the Fifth Circuit as a favorable venue, and this question may eventually end up at the U.S. Supreme Court.
The FTC is also appealing a preliminary injunction from the U.S. District Court for the Middle District of Florida in Properties of the Villages, Inc. v. Federal Trade Commission. The court held in that case that the new rule is likely barred by the major questions doctrine, which requires clear congressional authorization for agency actions with extraordinary economic and political significance. The major questions doctrine fits squarely into the recent shift away from Chevron deference and further limits government agencies acting without explicit congressional approval. The court did not, however, find that the Administrative Procedure Act barred the rule from taking effect and it has not gone so far as to enjoin the rule nationally. The FTC has appealed to the Eleventh Circuit, and briefing is progressing in that appeal.
In contrast to the courts’ decisions in Properties of the Villages and Ryan, LLC, the U.S. District Court for the Eastern District of Pennsylvania held that neither the APA nor the major questions doctrine were likely to bar the final rule in ATS Tree Services, LLC v. Federal Trade Commission. The court refused to issue a preliminary injunction and ATS Tree Services dropped its challenge to the rule.
It is possible that the issue will eventually make it to the Supreme Court, but as my previous articles have explained, I believe it is unlikely that the rule will ultimately survive. The ATS Tree Services case from the District of Pennsylvania could have increased the likelihood of conflicting rulings and a circuit split, especially if it had been appealed and ultimately affirmed in the Third Circuit. Of course, it is possible that further litigation could create a conflict between circuit courts of appeals. Given the results of the November presidential election, President-Elect Trump will nominate a new chair of the FTC in January 2025. A new chair could withdraw the pending appeals, and the non-compete rule would never come into effect. ♦