The Federal Trade Commission’s (FTC) rule banning most non-compete agreements continues to produce legal developments. Conflicting opinions were previously issued by a court in the U.S. District Court for the Northern District of Texas and by a court in the U.S. District Court for the Eastern District of Pennsylvania. In Ryan LLC v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex., July 3, 2024), the United States District Court for the Northern District of Texas issued a preliminary injunction prohibiting the enforcement of the FTC’s rule against the named plaintiff in that case. On the other hand, in ATS Tree Services, LLC v. FTC, Case No. 2:24-CV-01743, 2024 WL 3511630 (E.D. Pa., July 23, 2024), the court denied a motion for a preliminary injunction to prevent enforcement of the rule. On August 20, 2024, this legal saga saw another significant development as the Ryan LLC court issued a permanent injunction against the FTC rule in Ryan LLC v. FTC, Case No. 3:24-CV-00986, 2024 WL 3879954 (N.D. Tex., Aug. 20, 2024). Unlike the preliminary injunction that the court previously issued, the permanent injunction is national. The non-compete agreement ban, which was scheduled to go into effect on September 4, 2024, is now nullified due to the permanent injunction of the federal court. This, however, is subject to appeal and other possible legal developments. The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.
The federal court in Ryan LLC issued the permanent injunction based on many of the same reasons as its preliminary injunction entered earlier in the case. The Judge relied heavily on the federal Administrative Procedures Act (APA), which requires that courts set aside administrative agency actions when they are “arbitrary, capricious, or otherwise not in accordance to the law” or “in excess of statutory jurisdiction, authority, limitations, or short of statutory right.” 5 U.S.C. § 706. In applying the APA, the court found that the FTC Act does not grant substantive rulemaking authority to the FTC, and the non-compete ban is arbitrary and capricious. 2024 WL 3879954. The court reasoned that the FTC Act does not grant it substantive ruler making authority. Section 6 only vested the FTC with the authority “to make rules and regulations to carry out the provisions of the subchapter.” The Ryan LLC court characterized section 6 as a “housekeeping” statute. See also Chrysler Corp. v. Brown, 441 U.S. 281 (1979). It lacks a statutory penalty and is in a nonessential location. In addition, the court determined the non-compete ban is arbitrary and capricious because it is unreasonably broad. The studies the FTC relied on a to enact its rule did not support a such a sweeping ban.
In reaching its holding, the Ryan LLC court did cite to Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), the recent Supreme Court case that eliminated court deference to agency rules. This reference suggests the court did not provide deference to the rule that would normally be applied before the Looper Bright Enterprises decision. However, the court did not expressly make such a ruling.
The FTC will likely appeal the ruling to the United States Court of Appeals For The Fifth Circuit. It is possible that the case could eventually reach the Supreme Court. At this point, we cannot be certain what the final result will be, whether the prohibition against the FTC’s ban will remain nationwide, or whether the FTC ban will be allowed to take effect, in full or in part, while litigation moves through the federal court system.
The Fort Lauderdale business litigation lawyers of the Mavrick Law Firm also represent clients in Miami , Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.