It Appears the FTC’s Rule Prohibiting Noncompetes is Dead (For Now)

In a previous article we outlined the FTCamp8217s Final Rule and the swift legal challenges attempting to block its implementation In particular we looked at a July 3 2024 decision in Ryan LLC v FTC where a Texas federal court granted a motion for a preliminary injunction against the FTCamp8217s Final Rule and temporarily enjoined the noncompete ban from going into effect against the named plaintiffintervenors Although in its initial preliminary injunction ruling the court only blocked the September 4 2024 implementation of the Final Rule against the plaintiff Ryan LLC our article posited that the court in Ryan could issue a broader nationwide block of the FTC rule in the futureThat predication came true last month On August 20 2024 the Ryan Court granted the plaintiffamp8217s motion for summary judgment and held that the FTCamp8217s Final Rule should not be enforced or otherwise take effect on September 4 2024 or thereafter With the scales of justice seemingly tipping back and forth over the legality of noncompetition clauses we will analyze what the Ryan court said and the impact on employers moving forwardRyan LLC v FTCFollowing the Ryan courtamp8217s grant of a preliminary injunction both parties submitted motions for summary judgment regarding the propriety of the FTCamp8217s Final Rule In the crosssummary judgment motions the main issues in front of the court werei whether the FTC was permitted to create substantive rules regarding unfair methods of competition andii whether the Final Ruleamp8217s sweeping prohibition was arbitrary and capriciousWith the first issue the court focused on the statutory text of Sections 6g and 18 of the FTC Act which grant the FTC some rulemaking power with respect to unfair methods of competition In analyzing the text the court recognized that the relevant statutory provisions lacked any language regarding the legal consequences or amp8203amp8220penaltiesamp8221 for failure to confirm to the FTCamp8217s regulations As such the court held that the FTCamp8217s authority under Sections 6g and 18 is merely confined toamp160amp8203amp8220interpretive or procedural rulesamp8221 and not substantive rulemaking powers ie not a nationwide ban of noncompetition agreementsThe court next looked at whether the FTCamp8217s Final Rule is arbitrary and capricious In rejecting the Final Rule the court highlighted the FTCamp8217s amp8203amp8220lack of evidence as to why they chose to impose such a sweeping prohibition that prohibits entering or enforcing virtually all noncompetes instead of targeting specific harmful noncompetesamp8221 The court noted that the FTC failed to show why such a amp8203amp8220categorical banamp8221 was necessary based on the evidence of how different states approached noncompete enforcement in different factual situations The court also emphasized that the FTC outright ignored some of the benefits of noncompetition restrictions In total the court held that the FTC exceeded its statutory power in promulgating its Final Rule on noncompetition agreements The court ruled that the Final Rule should not be enforced or otherwise take effect against all employers in the United StatesWhat Now for EmployersThe big headline from the Ryan decision is that employers no longer need to scramble to ensure compliance with the FTCamp8217s noncompete ban While litigation over the FTCamp8217s Final Rule may continue in other jurisdictions employers can now lean on the Ryan decision to argue that their noncompetition restrictions are not automatically unenforceableAdditionally the legal avenues to challenge the FTCamp8217s rule that was upheld in Texas is similar to several Supreme Court and federal court decisions undoing the Chevron Doctrine To learn more about the growing skepticism federal courts put on administrative rulemaking and adjudicative power please see the links to the articles belowHow Recent Changes to Administrative Law May Alter Labor and Employment Law as We Know It NLRBHow Recent Changes to Administrative Law May Alter Labor and Employment Law as We Know ItSo Long Chevron What The Elimination Of Agency Deference Means For Employers And The Future Of Labor And Employment LawNot Dead Yet Noncompetes Survive the FTC Rule Doesnamp8217t For NowLastly despite this win for employers there are still various state laws and court restrictions on noncompetition agreements that should be taken into consideration For example some states have implemented wage limits on when employers can restrict an employeeamp8217s ability to compete eg Colorado Illinois Washington and Washington DC while others have completely banned noncompete clauses in employment agreements eg California Minnesota North Dakota and OklahomaThis article was written by partners Blythe E Lovinger and Robert I Steiner along with associate Benjamin Gilman from the law firm Kelley Drye ampamp Warren LLP All three attorneys are part of the firmamp8217s national Labor and Employment practice and have extensive experience representing employers in various aspects of workplace lawPosted at MediaVillage through the Thought Leadership selfpublishing platformClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillageorgMyersBizNet

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It Appears the FTC’s Rule Prohibiting Noncompetes is Dead (For Now)

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