An Update on the Federal Trade Commission's Ban on Non-Competition Agreements
Litigation continues as a new Presidential Administration is days away...
Last year, the Federal Trade Commission (“FTC”) issued a rule which sought to ban and invalidate Non-Competition Agreements (the “FTC Non-Compete Rule”). Recall that the men and women who comprise the FTC are unelected, and thus basically unaccountable to the people.
If this sounds familiar, I wrote about this topic when it happened in the Spring of 2024. You can read (or hopefully re-read) that post below:
What is the state of the law on that topic today?
Unsurprisingly, there was litigation brought against the FTC almost immediately over whether the FTC has legal authority to interfere with private contracts, some of which are made and performed entirely intra-state. Recall that the exercise of federal power is predicated upon the Commerce Clause in the Constitution:
[The Congress shall have Power . . . ] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; . . .
U.S. Constitution, Article I, Section 8, Clause 3.
As you can see, the Commerce Clause grants Congress the power to regulate interstate commerce, for example between parties residing in two different States. What if a business transaction is formed and performed completely within one state? For example, a transaction between a buyer and seller, both located in Pennsylvania?
Another key question in the litigation is to what extent Congress can delegate its Commerce Clause power to the FTC, an Executive Branch agency?
That is where the legal waters do indeed get murky.
The FTC Non-Compete Rule was challenged in a lawsuit filed in the U.S. District Court for the District of Northern Texas in the Spring of 2024. That case, Ryan, LLC, et al. v. Federal Trade Commission, Docket No. 3:24-cv-00986-E, has culminated in a final and appealable decision which held that the FTC’s Non-Compete Rule shall not be enforced after September 4, 20241. A copy of that order is below:
This court order imposes a nationwide injunction in place which, the FTC has appealed to the U.S. Circuit Court of Appeals for the Fifth Circuit. On January 2, the FTC’s counsel filed a 75 page brief articulating why the District Court’s order imposing the nationwide ban should be overturned.
If you are so inclined, you can read that brief below:
This is of course a matter of tremendous significance to all businesses large and small. More to come as this matter develops. Of course, the incoming Presidential Administration will very likely impact this legal issue in a significant way. Stay tuned.
Thanks for reading!
September 4, 2024 was the date on which that the FTC Non-Compete Rule was to take effect.