The Federal Trade Commission’s rule banning most non-compete agreements is now before a federal appellate court. On May 7, 2024, the FTC proposed a rule that would have banned most non-compete agreements. This rule would have substantially impacted many businesses because non-compete agreements are used to prohibit employees from using the company’s information to compete after leaving. The rule was scheduled to go into effect on September 4, 2024. However, on August 15, 2024, the court in Properties of the Villages, Inc. v. FTC, 2024 WL 3870380 (M.D. Fla, Aug. 15, 2024), issued a preliminary injunction enjoining the FTC from enforcing the rule against the plaintiff. Several days later, on August 20, 2024, the court in Ryan LLC v. FTC, 2024 WL 3879954 (N.D. Tex., Aug. 20, 2024), issued a national permanent injunction against the rule. It was only a matter of an appellate court ruled on the matter. Properties of the Villages was appealed on September 24, 2024, to the Eleventh Circuit Court of Appeals and Ryan LLC was appealed on October 18, 2024 to the Fifth Circuit Court of Appeals. The FTC has since filed its Initial Brief in Properties of the Villages. The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent 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 litigation, and other legal disputes in federal and state courts and in arbitration.
In Properties of the Villages, the district court primarily issued the injunction based on the “major questions doctrine.” This doctrine requires government agencies like the FTC to identify “clear congressional authorization for the power it claims” when an agency claims to have the power to issue rules of “extraordinary … economic and political significance.” Courts consider a list of non-exhaustive factors to determine whether the doctrine applies such as whether the rule in question affects a significant portion of the economy, regulates in an area that has previously been the domain of state law, and is a consequential expansion of regulatory authority. In applying these factors to the non-compete ban, the district court found the rule will affect a significant portion of the economy because, based on the FTC’s own estimates, the rule will cause employers to pay hundreds of billions of dollars in additional wages. The district court also found that the FTC rule would preempt state laws that have traditionally governed non-compete agreements, and found that the rule is a significant expansion of the FTC’s authority. As a result, major questions doctrine applied and an injunction was granted because it determined Congress did not provide the FTC clear authorization to enact the rule.
The district court in Ryan LLC reached the same result through a different analysis. The court in Ryan LLC granted an injunction against the FTC based on statutory interpretation of the FTC Act. Sections 5 and 6 of the FTC Act were analyzed, and it was ultimately determined they did not provide the FTC authority to create substantive rules such as the non-compete ban. The Ryan LLC court also found the rule to be arbitrary and capricious. Properties of the Villages rejected both of these bases for issuing an injunction because the district court in Properties of the Villages determined the FTC Act provided the FTC substantive rulemaking authority, and the rule was not arbitrary and capricious.
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