Texas Federal Court Sets Aside FTC’s Noncompete Ban
The rule’s presumptive effective date was, until quite recently, scheduled for September 4, 2024. While litigants have been anticipating a widespread preliminary injunction against the ban, to date district courts presiding over attempts to enjoin the ban have only temporarily enjoined the FTC from enforcing the rule against the parties named in each respective action. As of this writing, there have been three major challenges to the FTC rule, all of which seek a stay of the effective date. Notably, two of these three cases were filed in Texas on April 23 and 24.
The Texas district court overseeing Ryan, LLC v. Federal Trade Commission, a lawsuit brought by a global tax services and software provider, was the first to enjoin the enactment of the ban. In Ryan, the dispute was centered on the FTC’s rulemaking authority concerning the enforceability of employer-employee noncompete agreements, which are described as “restrictive covenants that prohibit an employee from competing against the employer.” Ryan LLC filed suit challenging the rule on several grounds, and the U.S. Chamber of Commerce and other business associations intervened to challenge the rule as well. Ryan further challenged the FTC’s authority to enforce a nationwide ban on noncompete agreements and requested a stay of its effective date. The FTC argued that the plaintiffs failed to establish the necessity of a preliminary injunction to prevent imminent, irreparable harm as neither “mere litigation expense” nor “self-inflicted injury” qualify as irreparable.
The FTC’s arguments notwithstanding, under Fifth Circuit precedent, the “nonrecoverable costs of complying with a putatively invalid regulation typically constitute irreparable harm.” Undisputed in Ryan was the fact that the FTC rule would require compliance through, at the very least, notice to employees subject to existing noncompete clauses. The rule anticipates such notice as transmitted
on paper delivered by hand to the worker, or by mail at the worker’s last known personal street address, or by email at an email address belonging to the worker, including the worker’s current work email address or last known personal email address, or by text message at a mobile telephone number belonging to the worker.
After considering the competing arguments, the court concluded that compliance with the rule would result in financial injury, as required by the court when considering whether to grant a preliminary injunction. The court also concluded that the plaintiffs were likely to succeed on the merits that the noncompete rule is invalid. The FTC did not argue that the plaintiffs had an avenue to recover costs spent from complying with the rule, likely due in large part to the fact that “federal agencies generally enjoy sovereign immunity for any monetary damages.”
With respect to the requested stay, the plaintiffs argued that there was “no public interest in the perpetuation of unlawful agency action” and that a nationwide preliminary injunction would maintain the status quo while not harming the FTC. Conversely, the FTC argued that relief should be tailored—that it “be no more burdensome to the defendant than necessary to provide complete relief to the plaintiffs.” In deciding to limit the injunction to the parties in Ryan, the court found that the plaintiffs offered virtually no briefing (or basis) that would support “universal” or “nationwide” injunctive relief. Nor did the plaintiffs include any reference to application of the injunction to governmental units—only private entities. The court further noted that the plaintiffs likewise offered no briefing as to how or why nationwide injunctive relief was necessary to provide complete relief to the plaintiffs at such a preliminary stage.
The Ryan court deduced that the plaintiff-intervenors appeared to be seeking associational standing on behalf of their respective member entities, which issue they failed to brief. The plaintiff-intervenors also failed to provide sufficient evidence of their respective associational members for which they sought standing, nor any of the three elements that must be met regarding associational standing. Without such developed briefing, the court declined to extend injunctive relief to members of the plaintiff-intervenors. For those reasons, the Ryan court limited the scope of the injunctive relief to named plaintiff Ryan LLC and plaintiff-intervenors U.S. Chamber of Commerce, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce. The Ryan court issued an injunction on July 3, 2024. In barring enforcement only against the parties and members of the parties to the litigation, the court focused on two issues: (1) the likelihood that the FTC had overreached and exceeded its authority to develop substantive rules, and (2) a total ban on all noncompetes would likely be arbitrary and capricious.
On August 20, 2024, the Ryan court granted a motion for summary judgment filed by the U.S. Chamber of Commerce and other plaintiffs and rejected the FTC’s petition for a judgment in its favor. In reaching her decision to overturn the ban, U.S. district judge Ada Brown concluded that the FTC “exceeded its statutory authority” in making the rule, which the judge deemed “arbitrary and capricious.” The judge also concluded that the rule would cause irreparable harm. The rule would have retroactively invalidated over 30 million employment contracts and preempted the laws of 46 states. In reaching this holding, the court set aside the rule, with nationwide effect, ordering that the FTC will not be able to enforce its rule in this case or otherwise.
The Ryan decision underscores the significant legal challenges the FTC is already facing and will continue to face in proceeding with this rule moving forward. The combination of the Supreme Court’s reversal of Chevron deference as well as the specific legal arguments in cases like Ryan, as further set forth below, make it increasingly difficult for the FTC to implement its rule without clear and explicit statutory backing. Ryan exemplifies the broader judicial resistance to regulatory overreach and highlights the ongoing legal and legislative battles that will shape the future of noncompete agreements in the United States.
Supreme Court Alters Standard of Judicial Review for Agency Interpretation of Statutes
On January 17, 2024, the Supreme Court entertained oral arguments in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. U.S. Department of Commerce—consolidated cases challenging the scope of the Chevron deference doctrine. Chevron involved a legal challenge to a change in the U.S. government’s interpretation of the word “source” in the Clean Air Act of 1963. Although the act did not precisely define what constituted a “source” of air pollution, the Environmental Protection Agency (EPA) initially defined “source” to cover essentially any significant change or addition to a plant or factory. In 1981, the EPA changed its definition to mean only an entire plant or factory. This allowed companies to build new projects without going through the EPA’s lengthy new review process if they simultaneously modified other parts of their plant to reduce emissions so that the overall change in the plant’s emissions was zero. Natural Resources Defense Council, an environmentalist advocacy group, successfully challenged the legality of the EPA’s new definition in the trial court, and the case was appealed to the Supreme Court.
Writing for the majority, Justice John Paul Stevens opined:
When a challenge to an agency construction of a statutory provision, fairly conceptualized, really centers on the wisdom of the agency’s policy, rather than whether it is a reasonable choice within a gap left open by Congress, the challenge must fail. In such a case, federal judges—who have no constituency—have a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones: “Our Constitution vests such responsibilities in the political branches.”
The Court’s decision set forth a two-step analysis for federal courts to use when adjudicating a challenge to an agency’s interpretation of a law. First, the court should ask whether Congress has directly spoken to the precise question at issue. If Congress’s intent is clear, the court as well as the agency need not look further than the unambiguously expressed intent of Congress. If it is not clear, the court should refrain from imposing its own statutory construction. Instead, the court should ask whether the agency’s answer is based on a permissible construction of the statute if it is silent or ambiguous as to the specific issue.
The Supreme Court’s decision articulated a doctrine subsequently referred to as “Chevron deference,” which served as the legal framework through which courts reviewed, approved, and rejected regulations in the context of statutory intent for the next 40 plus years. Consistent with this approach is the philosophy, espoused by the Court, that “[j]udges are not experts in the [technical] field, and are not part of either political branch of the Government.” Until this year, the doctrine had enjoyed a relatively strict rule of deference to federal agencies’ interpretations of federal laws, having given regulators broad authority to make rules related to the environment, healthcare, immigration, and other subjects of public policy. Those who oppose Chevron argue that it undermines the separation of powers, while its supporters suggest that the doctrine facilitates administrative efficiency.
Chevron was one of the most significant and most frequently cited decisions in U.S. administrative law. However, in June 2024, the Supreme Court overruled Chevron in Loper Bright Enterprises v. Raimondo on the grounds that it conflicts with the Administrative Procedure Act. Together with its companion case, Relentless, Inc. v. U.S. Department of Commerce, the Court undid the principle of deference established in Chevron. Instead, the Court assigned the determination of congressional ambiguity to the judicial branch.
Both the Loper and Relentless cases were brought by fishing companies challenging a rule established by the National Marine Fisheries Service for fishing companies to pay for the cost of federal monitors assigned to their boats under authorization of the Magnuson-Stevens Fishery Conservation and Management Act (MSA). The issue in these two sister cases began when the government exhausted its own budget for certain at-sea monitoring programs. Rather than going back to Congress for funding, the National Oceanic and Atmospheric Administration (NOAA) decided that the herring fishermen should bear the cost of third-party monitors. These monitors are paid more than $700 per day per ship, which can account for up to 20% of a ship’s daily take-home pay and often exceeds what the ships’ captains earn. This financial burden led the impacted fishermen to bring a federal lawsuit seeking a ruling that they were not responsible for paying the cost of the monitors.
Under Chevron, federal courts had to defer to regulatory agencies like NOAA and their interpretation of the law in question. When Chevron deference applied, federal courts were not engaging in their constitutionally mandated role of deciding the meaning of laws and regulations. Because the MSA is silent about who is responsible for paying herring boat monitors, the courts had no choice but to reject any efforts to challenge these monitoring costs and NOAA’s authority to impose them, even if they agreed with the fishermen in principle.
Several affected fishermen successfully petitioned the Supreme Court to review their case and the specific issue of whether Chevron should continue to be applied by federal courts in situations like this. Oral arguments were heard in January 2024. The Court released its decision in Loper on June 28, 2024, both siding with the fishermen and overruling Chevron. In addition to overruling Chevron, the Supreme Court vacated the opinion of the D.C. Circuit and remanded for further proceedings. The fishermen continue to challenge the legality of industry-funded monitoring in the Atlantic herring fishery under the MSA.
In her dissenting opinion, Justice Elena Kagan, joined by Justice Sonia Sotomayor and Justice Ketanji Brown Jackson, remarked, “In one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law.” Justice Kagan further defended the propriety of Chevron deference as being “entrenched precedent, entitled to the protection of stare decisis,” and stated that “deference to the agency is the almost obvious choice, based on an implicit congressional delegation of interpretive authority.” Further defending Chevron, the dissent explained that courts defer “‘because of a presumption that Congress’ would have ‘desired the agency (rather than the courts)’ to exercise ‘whatever degree of discretion’ the statute allows.”
With the rulings in Loper and Relentless, the burden now falls on the judiciary to resolve “all relevant questions of law” when assessing agency decisions. In other words, the judiciary now assumes as a matter of law that there is a single “best reading” of any law, no matter how nebulously drafted or how technically complex—and that that best reading is the “one the court . . . concludes is best.” In writing for the majority, Chief Justice John Roberts explained that the Court’s opinion relies in part on an ideological return to the principles in place at our nation’s founding. It is in this context that the justices seize for themselves the right to decide how the federal agencies should apply each statute—except those for which Congress has expressly delegated the authority to interpret to a federal agency.
Concurring with the majority opinion, Justice Clarence Thomas wrote separately “to underscore [what he viewed as] a more fundamental problem: Chevron deference also violates our Constitution’s separation of powers.” Justice Thomas and Justice Neil Gorsuch both admonished the minority for “overlook[ing] Chevron’s constitutional defects,” further describing the doctrine as compromising the separation of powers by curbing the judicial power afforded to courts, and simultaneously expanding agencies’ executive power beyond constitutional limits. According to the majority, “The defining feature of [Chevron’s] framework is the identification of statutory ambiguity . . . . But the concept of ambiguity has always evaded meaningful definition. . . . Such an impressionistic and malleable concept ‘cannot stand as an every-day test for allocating’ interpretive authority between courts and agencies.”
Notwithstanding its ruling, the Court in Loper stated that prior cases that relied on Chevron were not being called into question. It also stated that agency deference, in certain limited situations, may still be appropriate, citing instances where the deference involves agency policymaking and fact-finding—as opposed to legal questions—and where the statute delegates such authority to the agency. The Court further pointed out that to the extent an agency’s expertise rests on factual premises within the agency’s expertise, it may still be informative.
Pennsylvania Federal Court Declines to Enjoin FTC’s Noncompete Ban
The third case filed against the FTC with respect to the FTC rule is ATS Tree Services, LLC v. Federal Trade Commission, which is currently pending in the Eastern District of Pennsylvania. ATS filed its lawsuit on April 25, 2024, and moved for a preliminary injunction and stay of effective date on May 14, 2024. In its motion, ATS alleged that it “is a small tree care business that uses non-compete agreements as a key component of its operational model to train and invest in the professional development of its employees.” As such, it argued that the FTC’s ban was significantly disrupting its business model, making ATS’s “extensive training and investment infeasible, and harming both ATS and its employees.” Arguing that the ban was “unlawful and unconstitutional,” ATS requested that the court stay the effective date pursuant to 5 U.S.C. § 705 and preliminarily enjoin its enforcement while ATS’s claims are litigated.
ATS maintained that while the FTC claimed authority to make substantive rules for unfair methods of competition based on statutes, said statutes only empower it to conduct adjudications and to make procedural rules for the same. ATS contended that the FTC’s “vague statutory mandate to prevent ‘[u]nfair methods of competition’ cannot be construed as authority to issue per se bans on commonplace business practices,” and the oblique language in the mandate cannot be considered “a ‘clear statement’ from Congress that the FTC is permitted to entirely displace an area of traditional state regulation and outlaw an employment practice of economic and political significance.” ATS also argued that a prohibition on unfair methods of competition fails to provide the court with an “intelligible principle by which the FTC can promulgate substantive regulations,” further describing it as “an unconstitutional delegation of legislative power by Congress.”
ATS claimed irreparable injury because noncompete agreements make it “feasible for ATS to make significant investments in the professional development of its employees.” But the ban eliminates the benefit ATS receives from that agreement and allows its employees to leave immediately and transfer the benefits of ATS’s training and investment to a direct competitor. According to ATS, this made its model unworkable, and as a result of the ban, ATS would be forced to “restructure its employment agreements and operational model and incur other nonrecoverable compliance costs over the next four months before the ban goes into effect.”
Finally, ATS argued that the equities and the public interest also favor ATS “because it is never in the public interest for the government to act unlawfully.” Adding to this argument, ATS surmised that a short delay in the rule’s implementation would cause no harm to the government.
In response, the FTC argued that noncompetes “undermine competition [and] have been scrutinized by courts for hundreds of years and are prohibited or restricted to some degree in all States. Yet, despite this patchwork of existing oversight, non-competes continue to impair competition, suppressing wages, entrepreneurship, and economic liberty.” Undergirding its authority to issue the ban, the FTC contended that Congress charged it with the duty to prevent unfair methods of competition in or affecting commerce. The FTC described in great detail the lengths through which it investigated the propriety of noncompete agreements by conducting “an extensive inquiry into the issue spanning two presidential administrations, including a robust review of the literature, the Commission’s own empirical analysis, and collection of input from market participants.” It received what it described to be “overwhelming evidence from the public” about the detrimental effects of noncompetes. For example, it heard “from doctors about rural healthcare shortages caused by non-competes, from aspiring innovators blocked from bringing to market a better product at a better price, from scientists for whom non-competes had impeded collaboration and delayed discovery of breakthrough cancer treatments, and from businesses prevented from expanding because dominant corporations had locked up key talent.”
The FTC’s “expert analysis” of the record “culminated in the promulgation of a rule declaring most existing noncompetes unenforceable, subject to an exception for certain senior executives, and banning the future use of most noncompetes.” According to the FTC, the ban is expected to generate “a 2.7% increase in new businesses each year, raise wages, lower health care costs, and boost innovation.” Further, the FTC claimed that the rule would lead to over 100,000 new patents over 10 years, a $400–$488 billion increase in worker earnings over 10 years, and a decrease in consumer prices.
The FTC broke down its argument with a preliminary investigation of its rulemaking authority. It first cited to section 5 of the Federal Trade Commission Act (FTC Act), which provides a directive to prevent unfair methods of competition and unfair, deceptive, or abusive acts or practices and confers on the FTC “broad powers to declare trade practices unfair.” These broad powers include adjudication and rulemaking. Enforcement actions subject to adjudication before the FTC are governed by formal procedures and subject to judicial review. Such adjudications are precedential in nature and apply to future FTC actions. Section 6 of the FTC Act contains “additional powers,” including significant investigative and rulemaking authority. Section 6(g) empowers the FTC to “classify corporations” and “to make rules and regulations for the purpose of carrying out the provisions of this subchapter.”
Next, the FTC argued that noncompetes undermine economic liberty, prevent individuals from moving freely to switch jobs or start their own businesses, are anticompetitive in nature, and have pernicious effects. Before adopting the final rule, the FTC described its exhaustive survey and analysis of the economic literature regarding noncompetes and considered public comments that were filed in response. The FTC found that all noncompetes (1) are a method of competition as opposed to a condition of the marketplace, (2) are facially unfair because they are restrictive and exclusionary, and (3) tend to negatively affect competition in labor, product, and service markets. The FTC also found that noncompetes with non-senior executives are exploitative and coercive because they are often imposed unilaterally. But the same cannot be said for senior executives, who often have an opportunity to bargain for, and receive compensation for, noncompetes.
In disputing the arguments set forth by ATS in advancing its request for an injunction, the FTC claimed that ATS failed to meaningfully challenge the FTC’s ability to regulate noncompetes or its conclusion that they are an unfair method of competition. Rather, ATS contended that the FTC cannot regulate noncompetes through its section 6 rulemaking authority. The FTC countered that “the text and legislative history clearly demonstrate that Congress conferred rulemaking authority on the Commission.”
With respect to its statutory authority to promulgate the rule, the FTC argued that ATS’s reading of section 6 is contrary to an interpretation of the statute ratified by Congress and would render other provisions superfluous. The FTC contended that ATS cited no authority to support its claim that issuing rules through notice-and-comment rulemaking is an impermissible delegation when the agency could regulate the same area through adjudication and enforcement actions. The FTC further argued that ATS’s nondelegation challenge lacks merit. The nondelegation doctrine requires that Congress “articulate ‘an intelligible principle’ to guide the agency.” The FTC described this standard as “not demanding” and stemming from a “practical understanding that in our increasingly complex society, replete with ever changing and more technical problems, Congress simply cannot do its job absent an ability to delegate power under broad general directives.”
The FTC then attempted to refute ATS’s irreparable harm argument by asserting that ATS did not attempt to quantify the associated costs it anticipates and that failure to demonstrate “anything more than de minimis economic harm is fatal to [a] motion for the extraordinary relief of a preliminary injunction.” Addressing ATS’s assertion that it now must modify its business to account for the inability to prevent its employees from leaving for a direct competitor, such as by reducing the training provided to its workers, the FTC responded that nothing in the rule requires ATS to reduce its training, and its choice to do so would constitute “self-inflicted” harm that does not qualify as irreparable. Likewise, a potential reduction in workforce was “speculative” and thus not cognizable harm for purposes of a preliminary injunction.
Finally, the FTC argued that the balance of equities and public interest weigh in its favor, and that ATS conflated its merits arguments with a showing that the balance tips in its favor. The FTC elaborated that ATS incorrectly described the rule as an “unlawful agency action” and then argued that there is no public interest in its enforcement. The FTC responded to this assertion by arguing that whenever the government “is enjoined by a court from effectuating statutes enacted by representatives of its people, it suffers a form of irreparable injury.” In addressing ATS’s request for a nationwide stay of the rule, the FTC argued that “narrow tailoring is especially important here because the Rule’s severability provisions make clear that the Commission intended the Rule to remain in effect to the maximum extent possible if any portion is held ‘invalid or unenforceable’ or is ‘stayed.’”
On July 23, 2024, the court denied ATS’s motion to enjoin and stay the FTC rule, finding that ATS was unable to demonstrate a likelihood of success on the merits and that the alleged irreparable harm was too speculative. On September 6, 2024, ATS sought to stay the litigation in light of Ryan. The case remains pending.
Implications of FTC’s Noncompete Ban and Ongoing Legal Challenges
Advocates of the FTC ban on noncompetes contend that noncompetes stifle economic liberty and depress wages, while its opponents argue that the ban could lead to a more dynamic and competitive job market. The issue is indeed polarized and results in more division as noncompetes continue to confront legal attacks across the country.
In addition to arguing that it will provide much-needed support for employees’ ability to pursue economic advancement, proponents of the FTC rule estimate a projected reduction of $194 billion in healthcare costs over the next decade. New business formation is projected to increase at a 2.7% rate, resulting in 8,500 new businesses created each year. Innovation is likewise expected to rise at an average of 17,000–29,000 more patents each year. More specifically, this projected increase will yield about 3,000–5,000 new patents in the first year noncompetes are banned, rising to about 30,000–53,000 in the 10th year—an estimated overall increase of 11%–19% annually over a 10-year period. Proponents also project $400–$488 billion in increased wages for workers over the next decade, as well as more freedom to switch jobs, potentially leading to better job matches and higher productivity. And, by allowing employees to move freely, the ban could foster innovation and competition, benefiting the overall economy.
Critics of the FTC rule argue that a ban would make employers less willing to invest in training and development if they fear employees will leave for competitors. They further believe that implementing and enforcing the ban could lead to increased legal and administrative costs for businesses. Some argue that without noncompete agreements, job security could be compromised as employees might be more easily poached by competitors.
As detailed above, this initiative has faced significant legal challenges, resulting in a series of court rulings that have shaped the current landscape. At this point, the rule’s chances of ultimately being applied and enforced are questionable, at best. Likewise, the divergent rulings from different courts underscore the complexity of the legal landscape surrounding the FTC’s ban on noncompete agreements. The Texas ruling, in particular, sets a significant precedent by challenging the FTC’s regulatory authority. However, the Pennsylvania decision offers a contrasting perspective that may influence future rulings. The broader implications of these legal attacks on the ban have significant reach. For example, the August 20, 2024, Ryan ruling sets a precedent that could limit the FTC’s ability to enact broad regulations without explicit congressional authorization. It underscores the importance of clear statutory mandates for federal agencies. Additionally, the decision may influence how other federal agencies approach rulemaking, potentially leading to more cautious and narrowly tailored regulations.
For businesses, particularly those in industries reliant on trade secrets and specialized knowledge, the Ryan ruling is a major victory. “Today we prevail in protecting the very foundation of innovation that drives our economy from the overreach of the FTC in its misguided mission to invalidate millions of employment contracts,” said Ryan chairman and CEO G. Brint Ryan. “Non-competes serve as a cornerstone of mutual trust between employer and employee. As a champion for our clients and business owners nationwide, Ryan stands proud in the role we’ve played to protect businesses’ intellectual property and ongoing investment in employee training and skill development.”
On the flip side, the Ryan decision may have the effect of substantially slowing efforts to increase job mobility and wage growth for employees. Noncompete agreements can restrict workers’ ability to move freely between jobs, potentially limiting their career advancement and earning potential. Jurisdictionally, the ruling highlights the ongoing tension between federal and state regulation of employment practices. States with more restrictive noncompete laws may continue to enforce their own rules, leading to a patchwork of regulations across the country. The decision also introduces uncertainty for businesses and employees as the legal battles continue. Companies must navigate the evolving legal environment while balancing the need to protect their interests and comply with varying state laws.
The legal challenges to the FTC’s ban on noncompete agreements reflect broader debates about the scope of regulatory authority and the balance between protecting workers’ rights and business interests. As the legal process unfolds, the final resolution will have significant implications for employers, employees, and the broader economy. The August 20 Ryan ruling represents a pivotal moment in the debate over noncompete agreements and federal regulatory authority. By striking down the FTC’s ban, the court has preserved the status quo for businesses but also highlighted the need for a balanced approach that considers both economic freedom and worker protections. As the legal landscape continues to evolve, stakeholders must stay informed and adaptable to navigate the complexities ahead.
Practical Guidance on Noncompetes and Alternative Protections
Given the ongoing likelihood for restructuring of jurisprudence on the issue of noncompetes, it will become increasingly critical for businesses across the country to consult with legal counsel to review and update noncompete agreements and ensure existing noncompete agreements comply with state laws (as the federal ban is currently blocked). It may also be necessary to consider narrowing the scope and duration of noncompete clauses in an effort to ensure they will be enforceable under a variety of differing state and local laws, regulations, and guidelines. What was previously considered a fairly straightforward question of contract law may now be construed as a trade secret matter, subject to wholly different elements of proof and corresponding necessary steps to take decisive action.
While the legal landscape of noncompetes evolves, businesses may also want to explore other methods of protecting trade secrets and proprietary information, such as nondisclosure agreements (NDAs), nonsolicitation agreements, and confidentiality clauses. Businesses should continue investing in employee training on the importance of protecting sensitive information and the legal implications of breaches. Businesses can still enhance employee retention through competitive salaries, benefits, and career development opportunities while reducing reliance on noncompete agreements. Employers should also pursue ongoing efforts to foster a positive work environment that encourages loyalty and reduces turnover.
Human resources departments are likewise encouraged to keep abreast of ongoing legal developments related to the FTC’s ban and state-level regulations and monitor case law and rulings in different jurisdictions to understand how courts are interpreting and enforcing noncompete agreements. Compliance is key amid this rapidly changing body of law, so it is crucial that businesses develop and implement compliance programs that align with current legal standards. This includes training for human resources and management on the lawful use of noncompete agreements, and what won’t pass muster. Businesses are also encouraged to assess the risks associated with noncompete agreements and develop strategies to mitigate potential legal challenges.
Practitioners are encouraged to monitor the appeals process for the Ryan case and other related cases, as higher court rulings could further impact the enforceability of noncompete agreements. Preparing to adapt legal strategies based on the outcomes of ongoing litigation and regulatory changes may involve revisions to existing agreements, policies, and litigation approaches. Lawyers play a crucial role in navigating the complex legal landscape surrounding noncompete agreements. By staying informed, providing tailored advice, and proactively addressing potential legal challenges, lawyers can help their clients protect their business interests while complying with evolving legal standards.
With finality of the determinations not expected until after the upcoming presidential election, it is reasonable to assume whoever wins in November will impact the trajectory of further FTC action regarding both the noncompete rule and its approach to enforcement in general. And while the Ryan court cited Loper, the contours and ramifications of Chevron’s demise were not fully explored, leaving it vulnerable for future appeals.
Conclusion
The FTC’s noncompete rule heralds the FTC’s view of noncompetes and its intent to take further action, regardless of whether the rule is ultimately upheld. Such an outcome could further signal the FTC’s treatment of future proposed mergers and present a harbinger of its future endeavors to challenge individual noncompetes by way of warning letters, investigations, and administrative complaints. Importantly, the parties in Ryan argued that the threat of litigation was indeed a “harm” that should be taken into consideration by the court. The FTC insists that it may undertake an enforcement action against those same entities pursuant to section 5 of the FTC Act even without the rule in place. In other words, even a national abrogation of the noncompete rule may not change the FTC’s future rulemaking endeavors.
