As we have previously written, on April 23, 2024, the Federal Trade Commission (FTC) issued a sweeping final rule (“the Rule”) that purports to ban virtually all post-employment noncompete agreements in the United States. The Rule was formally published in the Federal Register on May 7, 2024, and will go into effect 120 days later, on September 4, 2024--if it survives the legal challenges that were filed in quick response.
While justice may not always be swift, the news about the Rule and challenges to it have developed at breakneck speed by many litigators’ standards over the past three weeks, but we have been marking the scorecards attentively to help you stay informed. What’s more, this issue is of such importance to our clients, we have left the sidelines and stepped into the arena.
The Lawsuits: What Has Happened So Far?
In case you missed any of it, here is a quick summary of the litigation brought against the FTC to challenge its noncompete ban as of this writing. The first legal challenge was brought in the Northern District of Texas within hours of the FTC’s vote to approve the rule by plaintiff Ryan, LLC, (“Ryan”) a Dallas-based global tax services and software provider. The next day, the U.S. Chamber of Commerce (“the Chamber”), along with other groups, filed a similar action in the Eastern District of Texas. And the day after that, ATS Tree Service, LLC filed an action in the Eastern District of Pennsylvania making similar arguments.
Within the week, the FTC responded to the Chamber’s lawsuit with a motion, asking the court to limit the Chamber’s lawsuit or transfer it to the Northern District of Texas, under a principle called the “First to File Rule.” Just three days later, Judge Campbell Barker issued an Opinion and Order halting proceedings in the case, but authorizing the Chamber to join the Ryan action in the neighboring federal judicial district.
Three business days later, the Chamber filed a Motion to Intervene in the Ryan matter, which was granted by the Court for the Northern District of Texas the next day, May 9, 2024. This effectively consolidates the cases brought in rapid response to the FTC’s decision to promulgate the Rule before Judge Ada Elena Brown.
The plaintiffs in all three cases have filed motions seeking to stay the September 4th effective date of the Rule and a preliminary injunction prohibiting its enforcement. They are making several arguments, including that the FTC does not have authority to regulate noncompetes and, even if it did, the Rule is arbitrary and capricious. We have previously discussed these arguments in detail.
Amicus Brief
Our practice was privileged to have been entrusted with submitting comments in response to the FTC’s proposed rule on behalf of several national trade organizations and chambers of commerce last year after the proposed rule was announced. Unfortunately, the FTC ignored or summarily dismissed those and most other industry comments in favor of comments, often from anonymous and/or unverified individuals, that supported the FTC’s preordained decision to ban noncompetes no matter what.
As that was a clear violation of the FTC’s statutory rulemaking obligations, the business community was, unsurprisingly, displeased. As a result, we were again privileged to have been entrusted with submitting an amicus brief in support of the plaintiffs in the lead case in the Northern District of Texas—click here to download the brief. While not parties to the lawsuit, the supporters (called amici in legalese) are a coalition of eleven national and international industry groups from a broad range of sectors, including retail and wholesale, small business, hospitality, trades, health care, and technology. Collectively, these eleven groups represent thousands of companies that employ tens of millions of Americans. A cross-office, cross-departmental team led by Erik Weibust (Boston), and including Carolyn Boucek (Chicago), Millie Warner (New York), and Kate Rigby (Boston), drafted the Amicus Brief on behalf of the amici group, which was coordinated by the National Retail Federation. Eddie Loya (Dallas) served as local counsel for the team.
The Amicus Brief, while endorsing arguments already submitted by the plaintiffs in their own briefs, focuses on additional points that support the proposition that the court must halt the FTC’s Rule. These include:
- Arbitrary and Capricious Rulemaking: The Rule represents an arbitrary and capricious deviation from hundreds of years of contract law that:
- ignores the provenance of legislation and jurisprudence over employment related agreements within the common law that has been the jurisdiction of state law – not federal law – since the founding of our nation; and
- relies on incomplete and cherrypicked data to justify itself.
- Abuse of Discretion: The Commissioners who voted (albeit by a slim margin and along party lines) to promulgate this sweeping Rule, as unelected bureaucrats with limited authority and no democratic accountability, acted in excess, as evidenced by an apparent refusal to consider and address comments submitted through the mandatory rulemaking process that is intended to serve as a check to their power.
The Amicus Brief provides a concise set of facts that refute the FTC’s publicly stated rationales for the Rule, demonstrating that noncompetes do not regularly apply to low wage workers, do not reduce workers’ wages, do not stifle new business and ideas, do not result from employers regularly coercing workers into signing them, and do not harm consumers.
What Next?
Our motion for leave to file the Amicus Brief was granted on May 15, 2024, meaning that Judge Brown will consider it along with other arguments that have been submitted, or may yet be submitted, in support of or opposition to enforcement of the Rule.
While it is impossible to predict with total certainty what any court will do, this is the Northern District of Texas. Geographically, it happens to be the largest federal judicial district in the nation, and it has also gained prominence for what some say is outsized influence on the fate of struggles with the administrative state. We shall see, and probably soon. Keep the popcorn handy and stay tuned.
Epstein Becker Green Staff Attorney Elizabeth A. Ledkovsky contributed to the preparation of this article.
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