FORT LAUDERDALE BUSINESS LITIGATION: LEGAL CHALLENGES TO FTC RULE AGAINST NON-COMPETE AGREEMENTS

The Federal Trade Commission (FTC) controversially issued a final rule banning most non-compete agreements. This rule severely impedes the ability of businesses to protect their legitimate business interests such as customer relationships, goodwill, confidential business information, and trade secrets. However, the FTC’s rule is facing legal challenges from different directions. Last week we wrote about a direct legal challenge and the Northern District of Texas’ injunction prohibiting enforcement of the rule. Ryan LLC v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex., July 3, 2024). This week we examine a potential future indirect challenge to the FTC’s rule based on the Supreme Court Loper Bright Enterprises v. Raimondo, __ S. Ct. __, 2024 WL 3208360 (2024) decision eliminating Chevron deference. As discussed more fully below, Loper Bright effectively removed a tool the FTC could have used to enforce its non-compete ban. Peter Mavrick is a Fort Lauderdale business litigation attorney. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents 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 law, and other legal disputes in federal and state courts and in arbitration.

The Supreme Court established the legal doctrine known as Chevron deference in the case Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Chevron deference required court to be highly deferential to agency regulations. It established a two-step process a court must employ when determining whether to rely on an agency regulation. First, the court must determine “whether Congress has spoken to the precise question at issue.” This is done by reviewing the clarity of the relevant statute at issue. Second, if “the statute is silent or ambiguous with respect to the specific issue”, then the court must defer to an agency regulation when it “is based on a permissible construction of the statute.” This holding shifts power away from the executive branch of government and the agencies associated therewith in favor of the judicial branch of government.

In practice, Chevron essentially determined that agency regulations are binding precedent. In fact, courts have used Chevron as the foundation to enforce FTC regulations. See Mattox v. FTC, 752 F.2d 116 (5th Cir. 1985) (finding that FTC regulations regarding Hart-Scott-Rodino Act entitled to Chevron deference); Nat’l Automobile Dealers Ass’n v. FTC, 864 F. Supp. 2d 65 (D.D.C., May 22, 2012) (holding that FTC regulation regarding Fair Credit Reporting Act was entitled to Chevron deference). Therefore, FTC could have attempted to rely on Chevron to enforce its non-compete ban before Loper Bright.

The Supreme Court eliminated Chevron deference in Loper Bright. The Supreme Court reasoned that courts did not historically treat administrative regulations as binding precedent and Chevron conflicts with the Administrative Procedures Act (“APA”) (among other reasons). Loper Bright, 2024 WL 3208360. “Chevron defies the command of the APA that ‘the reviewing court’—not the agency whose action it reviews—is to ‘decide all relevant questions of law.’” As a result, courts must now “exercise independent judgment in deciding whether an agency has acted within its statutory authority.”

Without Chevron deference, the FTC will likely have a more difficult time enforcing its non-compete ban because courts cannot give deference to the FTC’s rule. It is also likely the FTC have a more difficult time defending its non-compete ban without the deferential component permitted under Chevron. Businesses should monitor future legal developments regarding the FTC’s non-compete ban.

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.