Annie Stuller

By Annie Stuller

On July 23, 2024, a federal judge from the Eastern District of Pennsylvania declined to issue a preliminary injunction that would block the Federal Trade Commission’s (“FTC”) rule banning most noncompete agreements, current and future, that is set to take effect on September 4 (“Rule”).

In reaching this decision, the judge concluded that the plaintiff failed to demonstrate a substantial likelihood of success on the merits. First, the judge rejected the plaintiff’s argument that Section 6(g) of the Federal Trade Commission Act (“FTC Act” or “Act”) only authorizes procedural rulemaking, explaining it “is inherently inconsistent and therefore untenable” to read the word “procedural” but not “substantive” into the FTC Act when neither word appears within the Act. She explained, “it [is] clear that the FTC is empowered to make both procedural and substantive rules as is necessary to prevent unfair methods of competition.” Second, unpersuaded by the plaintiff’s supporting reasons, the judge rejected the plaintiff’s alternative argument that—even if the FTC Act empowers the FTC with authority to make substantive rules—the FTC exceeded its authority by banning all noncompete agreements. Read more >>

Mark Wiletsky

By Mark Wiletsky and Annie Stuller

On July 3, 2024, a federal judge from the Northern District of Texas barred the Federal Trade Commission (“FTC”) from enforcing its Rule banning noncompete agreements and paused the Rule’s effective date of September 4, 2024. However, the judge limited the scope of her preliminary order to the plaintiff (Ryan LLC) and plaintiff-intervenors (the U.S. Chamber of Commerce and other business associations), declining to pause the Rule nationwide. As a result, for all other employers, this Rule is still set to take effect on September 4, absent further action by this court or another court in which a challenge to the Rule is pending.

Annie Stuller

The challenged Rule broadly bars employers from entering noncompete agreements with employees, invalidates existing agreements except for highly compensated individuals in a policymaking position, and requires employers to provide notice to current and former employees bound by existing agreements that the agreement will not be enforceable once the Rule takes effect.

In siding with the plaintiff and plaintiff-intervenors, the judge reasoned that the FTC lacked statutory authority under Section 6(g) of the Federal Trade Commission Act (“FTC Act”) because it is a “housekeeping statute” that only authorizes procedural—not substantive—rulemaking. She reached this conclusion by looking to “the text, structure, and history of the FTC Act.” The judge further concluded that the Rule violates the Administrative Procedure Act’s prohibition against arbitrary and capricious rules “because it is unreasonably overbroad without a reasonable explanation.” Employers should keep in mind that these conclusions were based on a “substantial likelihood” of success on the merits, signaling the judge will likely (but not certainly) rule in favor of the plaintiff and plaintiff-intervenors. Read more >>