Article by Brian Davis, Law Clerk and Samuel Evans, Esq.
Chevron Overturned
On June 28, 2024, the United States Supreme Court determined in Loper Bright Enters. v. Raimondo that Chevron deference violates the Administrative Procedure Act. As a result, judges are no longer required to adopt a governmental agency’s interpretation of statutory law. The Loper Bright decision calls into question the viability of the Federal Trade Commission’s (“FTC”) recent rule banning the use and enforceability of non-compete agreements.
Loper Bright’sImpact on the Non-compete Legal Challenges
Two lawsuits, one brought in Texas and one brought in Pennsylvania, involve challenges to the validity of the FTC’s non-compete ban:
- Ryan, LLC v. FTC;[1] and
- ATS Tree Services, LLC v. FTC.[2]
In the Texas action, Ryan, LLC challenged the FTC’s authority to promulgate new rules concerning unfair methods of competition, a power the FTC claimed to possess per its interpretation of the FTC Act. On July 3, 2024, the Texas district court granted a preliminary injunction staying the application of the rule to the Ryan plaintiffs. In its opinion, the district court cited to Loper Bright and emphasized the court’s renewed authority to examine and give effect to the intent of the legislature, irrespective of the FTC’s interpretation of the statute. The court’s quick acceptance of Loper Bright indicates a willingness to strike the non-compete rule at the merits stage as beyond the FTC’s congressionally granted authority. The district court judge intends to enter a merits disposition on or before August 30, 2024.
Although the Ryan court granted the preliminary injunction, the application of the preliminary injunction is limited to the Ryan Plaintiffs. In other words, the ruling did not provide for a nationwide injunction precluding implementation of the FTC rule. However, ATS Tree Services filed a similar case in Pennsylvania on April 25 followed by a motion for preliminary injunction on May 14 seeking a stay of the non-compete rule.[3] The district court heard oral argument on July 10 and plans to rule on a motion to stay by July 23. It is unknown whether the Pennsylvania district court will rule similarly to the Texas district court. The court could pause the ban (1) for the plaintiffs only; (2) for the state of Pennsylvania; or (3) for the nation. Therefore, employers and employees should nevertheless prepare to comply with the non-compete rule by September 4, 2024.
Considerations
To help preparations, consider the following points:
- Review and audit documents to confirm they contain appropriate language and, if necessary, revise documents intermittently.
- Find new ways to protect sensitive data. Although non-compete clauses could be ineffective come September, companies should still consider limited use, non-disclosure, and other severability clauses to protect agreements.
- Prepare lists of potentially affected employees and prepare notices in the event the ban is upheld.
- Pay attention to the decisions and assess the impact of outcomes. Pennsylvania companies should pay special attention to ATS Tree Services, LLC v. FTC because a decision on preliminary injunction will occur this month that could pause the FTC ruling in Pennsylvania altogether.
Burns White plans to remain up-to-date on the FTC non-compete ban litigation. We will continue to provide guidance and insight as the litigation process ambles through the courts.
[1]. No. 3:24-cv-986 (N.D. Tex. Apr. 23, 2024). Another lawsuit, Chamber of Commerce v. FTC, No. 6:24-cv-00148 (E.D. Tex. Apr. 24, 2024), was filed in Texas, but a judge stayed this lawsuit and permitted the U.S. Chamber of Commerce to intervene into the Ryan, LLC lawsuit. Ryan, LLC v. FTC, No. 3:24-cv-986-E, Slip. Op. at 7 (N.D. Tex. July 3, 2024).
[2]. No. 2:24-cv-01743 (E.D. Pa. Apr. 25, 2024).
[3]. ATS Tree Servs., LLC v. FTC, No. 2:24-cv-01743, Dkt. No. 15.