The Timeline Culminating in the Prohibition on the FTC’s Enforcement of the Ban on Non-Compete Agreements
By: Christina N. Marvin, Associate Attorney
On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule to ban non-compete agreements in most circumstances (the “Non-Compete Ban”). According to the FTC, the Non-Compete Ban was intended to foster new business formation by allowing workers the freedom to change jobs and the FTC expected the Non-Compete Ban to result in higher earnings for employees and lower healthcare costs.[1] Opponents of the Non-Compete Ban challenged the Non-Compete Ban, asserting that non-compete agreements (i) encourage investment in employees, (ii) protect trade secrets and other confidential information and (iii) are essential to the sale of a business.[2] The Non-Compete Ban was set to go into effect on September 4, 2024; however, the Non-Compete Ban is currently not enforceable due to subsequent court decisions.
On July 23, 2024, in ATS Tree Services, LLC v. Federal Trade Commission, U.S. District Judge Kelley B. Hodge for the Eastern District of Pennsylvania denied Plaintiff’s motion for a preliminary injunction (the “ATS Decision”). The Plaintiff sought a stay of the September 4, 2024 effective date of the Non-Compete Ban and an injunction preventing enforcement of the Non-Compete Ban.[3] Judge Hodge decided that the Plaintiff was not entitled to injunctive relief as the Plaintiff failed to establish by a reasonable likelihood that it would succeed on the merits of its claims that (i) the FTC lacked substantive rulemaking authority, (ii) the FTC exceeded its authority and (iii) Congress unconstitutionally delegated legislative power to the FTC.[4]
On August 15, 2024, U.S. District Judge Timothy J. Corrigan for the Middle District of Florida presided over Properties of the Villages, Inc. v. Federal Trade Commission, which involved a motion very similar to the Plaintiff’s in the ATS Decision that sought to stay the September 4, 2024 effective date of the Non-Compete Ban and prevent enforcement of the Non-Compete Ban (the “POV Decision”). In contrast to the ATS Decision, Judge Corrigan granted the Plaintiff’s motion. Judge Corrigan held that the Plaintiff had shown a substantial likelihood that it may prevail on its claim that the Non-Compete Ban exceeded the FTC’s authority.[5] Judge Corrigan made it very clear in his decision that the preliminary injunction only applies to the Plaintiff in this case and was not an “injunction of nationwide application.”[6]
On August 20, 2024, U.S. District Judge Ada E. Brown for the Northern District of Texas in Ryan LLC v. Chamber of Commerce of the United States of America granted Plaintiff’s motion for summary judgment, holding that the Non-Compete Ban was unlawful and must be set aside under the Administrative Procedure Act (the “Ryan Decision”).[7] In making this finding, Judge Brown found that the FTC exceeded its statutory authority in enacting the Non-Compete Ban and that such Non-Compete Ban was arbitrary and capricious.[8]
As a result of the Ryan decision, the FTC is now prohibited from enforcing the Non-Compete Ban. This prohibition on enforcing the Non-Compete Ban will likely continue to be litigated because the ATS Decision and the POV Decision are directly opposing rulings in different district courts and because the FTC may appeal the Ryan Decision. Accordingly, for now, the FTC is prohibited from enforcing the Non-Compete Ban; however, the matter should be closely monitored for updates.
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[1] FTC Announces Rule Banning Noncompetes, Fed. Trade Comm’n, April 23, 2024, https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes.
[2] ACA International, et al., Comment Letter on Proposed Rule 88 Fed. Reg. 3482-3546 (April 17, 2023) chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.icba.org/docs/default-source/icba/advocacy-documents/letters-to-regulators/joint-letter-opposing-ftc-noncompete-proposal.pdf?sfvrsn=610f1317_0.
[3] ATS Tree Services, LLC v. Fed. Trade Comm’n, No. 2:24-cv-01743-KBH (E.D. Pa. July 23, 2024).
[4] ATS Tree Services, LLC v. Fed. Trade Comm’n, No. 2:24-cv-01743-KBH (E.D. Pa. July 23, 2024).
[5] Properties of the Villages, Inc. v. Fed. Trade Comm’n, No. 5:24-cv-316-TJC-PRL (M.D. Fla. Aug. 15, 2024).
[6] Properties of the Villages, Inc. v. Fed. Trade Comm’n, No. 5:24-cv-316-TJC-PRL (M.D. Fla Aug. 15, 2024).
[7] The Administrative Procedure Act was enacted by Congress “as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.” Ryan LLC v. Chamber of Com. of the U.S., No. 3:24-CV-00986-E (N.D. Tex Aug. 24, 2024).
[8] Ryan LLC v. Chamber of Com. of the U.S., No. 3:24-CV-00986-E (N.D. Tex Aug. 24, 2024).