In April 2024, we wrote about the Federal Trade Commission’s (FTC) issuance of a “Final Rule” banning employee non-compete clauses, scheduled to take effect on September 4, 2024. Over the last few months, three federal courts have addressed whether a preliminary injunction should stay the rule’s effective date pending the conclusion of lawsuits challenging the FTC’s legal authority to issue the rule.
As we previously reported, in Ryan LLC v. Federal Trade Commission, the United States District Court for the Northern District of Texas issued a preliminary injunction preventing the rule from taking effect, but only regarding the plaintiff in the case. The court further held, however, that it would decide by August 30, 2024, whether to issue a permanent injunction.
Last month, a federal court in Pennsylvania refused to follow the Texas court’s lead and declined to issue an injunction in ATS Tree Services, LLC v. Federal Trade Commission. As we previously noted, although this decision was a setback for employers, it would be rendered irrelevant if the Texas court ultimately decided later this month that the FTC exceeded its authority in issuing the non-compete ban rule.
Last week, on August 14, 2024, a Florida federal court addressed the non-compete ban in Properties of the Villages, Inc. v. Federal Trade Commission and entered a limited preliminary injunction preventing the rule from taking effect and, like the Texas federal court, limited the preliminary injunction to the parties in the case. The court based its decision on the “major questions doctrine,” which prevents a federal agency from issuing substantive rules without express congressional authorization where such rules would have “extraordinary economic and political significance.” Indeed, the court found that the FTC rule would significantly impact the economy by modifying an area of law that has always been the province of state law.
It appears increasingly likely that the FTC rule will never become effective. In addition to the Texas and Florida decisions enjoining the FTC ban, the U.S. Supreme Court recently overruled a 40-year-old precedent granting federal agencies significant deference in interpreting laws through agency rules and regulations. The Supreme Court’s decision provides an alternative basis to vacate the FTC’s rule. In any event, speculation will end in the next ten days, and we will know whether the FTC rule will upend countless non-compete agreements or end up in the dustbin of failed political pitches.
