The U.S. District Court for the Northern District of Texas, on August 20, 2024, granted a motion for summary judgment in Ryan LLC et al v. FTC, blocking the Federal Trade Commission from enforcing its rule banning non-compete clauses in employment contracts against any employer, nationwide.  The court previously had issued a preliminary injunction preventing the FTC from enforcing the FTC Ban only with respect to the specific plaintiffs in that case.  See our blogpost here discussing that decision and the FTC Ban’s potential to impact the mortgage industry.  Read the court’s Order here.

With a blanket freeze now in place, pending appeal to the United States Court of Appeals for the Fifth Circuit, there is a question of whether the FTC Ban will take effect at all.  The Ryan decision is the latest of federal court decisions cutting back on regulators’ rulemaking authority, the most notable of which is this summer’s Supreme Court opinion in Loper Bright and Relentless expressly overturning the Chevron doctrine.  See our blogpost on that case here. 

The Decision

The court found the FTC Ban both an unlawful extension of the FTC’s rulemaking authority, and arbitrary and capricious.  In brief summary, the court held that Section 6(g) of the FTC Act did not grant the FTC substantive rulemaking authority over unfair methods of competition.  The FTC Ban attempted to unlawfully regulate unfair methods of competition, in contravention of Congress’s intent.  And the FTC Ban was arbitrary and capricious because the flawed evidentiary support upon which the FTC Ban relied paled in comparison to the “substantial body of evidence” in favor of non-competes.  The court held that the proper remedy was to hold the FTC Ban unlawful and set it aside. 

Related Litigation

Two other courts also have now ruled on challenges to the FTC Ban, with different results.   

ATS Tree Services v. FTC.  On July 23, 2024, the U.S. District Court for the Eastern District of Pennsylvania denied a motion for a preliminary injunction and stay of the FTC Ban.  The court held that the plaintiff in that case failed to show two of the four requirements needed for a preliminary injunction:  reasonable likelihood of success on the merits and irreparable harm.  See that court’s Order here.

Properties of the Villages v. FTC.  On August 14, 2024, the U.S. District Court for the Middle District of Florida granted a preliminary injunction, staying the effective date of the FTC Ban with respect to the plaintiff in that case.  However, the plaintiff in that case had only requested injunctive relief for itself.  The court here found that the plaintiff was likely to succeed on the merits of its argument that the FTC Ban violates the Supreme Court’s major questions doctrine.  See that court’s Order here.

What’s Next for Non-Competes?

Actual non-competes are not common in the mortgage industry, but non-solicitation and confidentiality provisions are.  At least some portion of these covenants likely would be swept up in the FTC Ban’s broad prohibitions.  For now, the FTC Ban has been set aside but the FTC can (and is expected to) appeal.  Meanwhile, states are becoming ever more active in this area and there are challenges under antitrust theories percolating in the courts.  Employers, stay mindful and look closely at your employment agreements. 

For more information, contact Troy Garris at troy@garrishorn.com.