FORT LAUDERDALE BUSINESS LITIGATION: DEVELOPMENTS IN FTC BAN OF NON-COMPETE AGREEMENTS

Developments regarding the Federal Trade Commission’s (FTC) prohibition of non-compete agreements continue. Recently, a court in the Eastern District of Pennsylvania denied a motion for preliminary injunction to prevent enforcement of the ban in ATS Tree Services, LLC v. FTC, Case No. 2:24-CV-01743, 2024 WL 3511630 (E.D. Pa., July 23, 2024). This decision conflicts with Ryan LLC v. FTC, Case No. 3:24-CV-00986 (N.D. Tex., July 3, 2024), wherein the court granted a preliminary injunction preventing enforcement of the 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.

In denying the motion for preliminary injunction, the court in ATS Tree Services, LLC found that the plaintiff did not establish irreparable harm or the likelihood of success on the merits. 2024 WL 3511630. The plaintiff argued, among other things, that the FTC rule would cause it to suffer irreparable harm because the plaintiff’s employees could immediately leave employment to work for a competitor thereby depriving the plaintiff of the benefits of the training it provided its employees. The plaintiff also claimed it would be irreparably harmed because there was a risk its employees would expose the employer’s confidential information to a competitor once they left the company. However, the court rejected both arguments. The argument regarding deprivation of training benefits was rejected because it was too speculative. The plaintiff did not provide any evidence that its employees would actually leave to work for a competitor. The argument regarding disclosure of confidential information was rejected because The FTC’s non-compete ban does not apply to non-disclosure agreements.

The court also denied the plaintiff’s request for an injunction prohibiting enforcement of the ban against non-compete agreements. The court determined that the plaintiff was not likely to succeed on the merits. The court determined the FTC had authority to engage in substantive rulemaking or its authority was not limited to procedural rulemaking. 2024 WL 3511630. The court analyzed the language of Section 6 of the FTC Act, which allows the FTC to “make rules and regulations for the purpose of carrying out the provisions of this chapter.” 15 U.S.C. § 46. The ATS court stated Section 6 does not explicitly limit the FTC’s rulemaking authority to only procedural rulemaking. In addition, the court analyzed Section 5 of the FTC Act, which allows the FTC to “prevent persons, partnerships, or corporations . . . from using unfair methods of competition . . . .” 15 U.S.C. § 45. Use of the word “prevent” inherently contemplates substantive rulemaking. 2024 WL 3511630. This holding contradicts the reasoning in Ryan LLC, which determined the FTC did not have substantive rulemaking authority. Ryan LLC, 2024 WL 3297524. Ryan LLC characterized Section 6 as a “housekeeping” statute.

It is noteworthy that ATS scarcely discussed Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024), a recent Supreme Court decision eliminating the deferential standard provided to agency rules established in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). ATS’s omission provides strong indication further litigation on the enforceability of the FTC’s non-compere ban is forthcoming. Only time will tell whether the non-compete ban ultimately survives legal challenge.

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.