(For previous article on the FTC non-compete rule, please refer to post “FTC is banning noncompete agreements – but what does that mean?”)
The Federal Trade Commission’s (FTC) non-compete rule is currently facing legal challenges and is unlikely to go into effect. A federal court in Texas on August 20, 2024 has ruled that the FTC cannot enforce the rule nationwide. “The court held that the FTC exceeded its statutory authority in implementing the Rule. The Court also held that the Rule is arbitrary and capricious.”[1]
While the FTC can appeal this decision to the U.S. Court of Appeals for the Fifth Circuit*, the recent Supreme Court ruling in Loper Bright may make it more difficult for the FTC to succeed. Overturning the longstanding doctrine known as “Chevron deference,” Loper Bright expands the judiciary’s power to review and reject interpretations of statutes adopted by federal administrative agencies.[2]
In addition to the Texas case, there are two other cases challenging the rule in federal court. One court granted a preliminary injunction against the rule (Properties of the Villages (Case No. 24-cv-316, Middle District of Florida), while another denied it (ATS Tree Services (Case No. 24-cv-1743, Eastern District of Pennsylvania). This split creates fertile ground for appellate review.
As a result of these legal challenges, the FTC cannot currently enforce the non-compete rule. This means that non-compete agreements are legal and enforceable on the same terms as they were before the FTC passed the rule. However, the FTC’s rule has put non-competes in the spotlight, and private plaintiffs are already attempting to use antitrust law to challenge non-compete agreements and seek damages**.
*The United States Court of Appeals for the Fifth Circuit is a federal appellate court that reviews cases tried in the United States District Courts of Louisiana, Mississippi, and Texas. The court is based in the John Minor Wisdom United States Courthouse in New Orleans, Louisiana.[3]
**See Order, Goforth et al v. Transform Holdco LLC et al., No. 23-cv-3167 (W.D. Mo. July 18, 2024), ECF No. 50 (denying defendant department store’s motion to dismiss and finding that the plaintiffs, homewares stores in Missouri, had adequately alleged that defendants used noncompete agreements to maintain market share in violation of the Sherman Act). [1]
References
[1] White & Case Global Non-Compete Resource Center (NCRC). (2024, August 20). White & Case LLP International Law Firm, Global Law Practice. https://www.whitecase.com/insight-tool/white-case-global-non-compete-resource-center-ncrc#status-of-legal-challenges
[2] After Chevron: What the Supreme Court’s loper bright decision changed, and what it didn’t | Cleary Gottlieb. (2024, July 11). https://www.clearygottlieb.com/news-and-insights/publication-listing/after-chevron-what-the-supreme-courts-loper-bright-decision-changed-and-what-it-didnt#:~:text=Overturning%20the%20longstanding%20doctrine%20known,however%2C%20should%20not%20be%20overstated.
[3] Brief history. (Referenced 2024, September 13). https://www.ca5.uscourts.gov/about-the-court/circuit-history/brief-history
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