Trade Secrets & Employee Mobility

The United States Courts of Appeals for the Fifth and Eleventh Circuits will have their chance to weigh in on the FTC’s Noncompete Ban, which had been scheduled to go into effect on September 4, 2024, but was enjoined a couple of weeks before that date.

First, the Fifth Circuit.  The FTC Noncompete Ban was blocked on a nationwide basis on August 20, 2024, when the United States District Court for the Northern District of Texas issued a memorandum opinion and order in Ryan LLC v. Federal Trade Comm’n, Case No. 3:24-cv-00986-E, granting the plaintiff’s motion for summary judgment and setting aside the Ban.  On October 18, 2024, the FTC filed a Notice of Appeal of the opinion and order to the Fifth Circuit.  The FTC Noncompete Ban remains enjoined during the pendency of this appeal.

In addition to the Fifth Circuit appeal, the FTC is taking a second bite at the proverbial apple, in the Eleventh Circuit.  On August 15, 2024, in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316, the United States District Court for the Middle District of Florida granted the plaintiff’s motion for a preliminary injunction (although limited in scope only to the plaintiff), prohibiting the FTC from enforcing the Noncompete Ban.  This was similar to how the U.S. District Court in Texas had previously ruled, on Ryan LLC’s preliminary injunction motion.  On September 24, 2024, the FTC filed a Notice of Appeal of the Florida District Court’s preliminary injunction to the Eleventh Circuit.

Last week, employers who use noncompetes got more good news with respect to the Federal Trade Commission’s proposed noncompete ban.

As readers of this blog are probably aware, back in August, the FTC’s noncompete ban was blocked when the United States District Court for the Northern District of Texas issued a memorandum opinion and order in Ryan LLC v. Federal Trade Comm’n, Case No. 3:24-cv-00986-E, granting the plaintiff’s motion for summary judgment and setting aside nationwide the FTC’s noncompete ban that was scheduled to go into effect on September 4, 2024.

Employers who use noncompetes may have breathed a sigh of relief with the Texas Court’s ruling, but a small doubt of uncertainty lingered.  Could another court reach the opposite decision and rule that the FTC noncompete ban may go into effect?

Two other federal lawsuits (one in Pennsylvania and one in Florida) challenging the FTC noncompete ban remained pending, and each had ruled upon a motion for a preliminary injunction regarding the FTC noncompete ban.  Like the Court in Texas, in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316 (M.D. Fla.), the Florida Court granted the plaintiff’s motion for a preliminary injunction (although limited in scope only to the plaintiff), and seemed likely to reach a final decision on the merits in line with the Texas Court. 

After what must have been a grueling two-hour and 52-minute oral argument on the merits of a challenge to the FTC’s Final Rule banning noncompetes, Judge Timothy Corrigan of the United States Court for the Middle District of Florida issued a ruling from the bench in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316 granting the plaintiff’s Motion for Stay of Effective Date and Preliminary Injunction.  Importantly, as with the decision in the Northern District of Texas, the court limited the scope of the preliminary injunction to the named plaintiff only.

Judge Corrigan’s swift ruling granting the motion to stay at the completion of the hearing is a welcome decision given the looming September 4, 2024 effective date of the FTC’s noncompete ban. While the court rejected two of plaintiff’s arguments as to success on the merits, the court held that the FTC exceeded its authority under the major questions doctrine.

In particular, the court quoted Supreme Court precedent that “common sense, informed by constitutional structure, tells us that Congress normally intends to make major policy decisions itself, not leave those decisions to agencies[.]”  Judge Corrigan considered the “huge economic impact” the Final Rule would have in transferring value from employers to employees, along with the Final Rule’s political significance preempting state competition laws.  In finding that the plaintiff established a likelihood of success on the major questions doctrine, the Florida court has established a split from the Eastern District of Pennsylvania, which ruled in July that the FTC’s issuance of the Final Rule did not implicate the major questions doctrine.