Well, that was quick. After rejecting a request for a nationwide injunction in her original opinion granting the plaintiffs’ motion for a preliminary injunction, and then summarily denying a motion to reconsider that ruling, this afternoon U.S. District Court Judge Ada Brown reversed course, granted summary judgment against the FTC, and effectively entered a nationwide ban against the Federal Trade Commission’s Final Rule banning noncompetes. This should mean that employers around the country will not have to send out notices to their former and current employees telling them their noncompetes are no longer valid, as the Final Rule required by September 4, 2024. For a concise review of Judge Brown’s opinion, read on.
The Basis for the Decision: This post assumes that readers are already familiar with the FTC’s Final Rule; if not, check out my earlier posts here and here.
Judge Brown reiterated the reasoning in her earlier July 3, 2024 opinion granting Plaintiffs Ryan, LLC, U.S. Chamber of Commerce, the Texas Chamber of Commerce and the Business Roundtable’s request to issue a preliminary injunction enjoining the FTC from enforcing the Final Rule against them. Simply put, Judge Brown found that the FTC’s Final Rule exceeded the statutory authority Congress had granted the FTC and that the Final Rule was arbitrary and capricious. For more analysis on that earlier ruling and Judge Brown’s reasoning, see Russell Beck’s fine post.
It was widely expected that Judge Brown would issue a final ruling substantively similar to what she did previously. However, employers around the country wanted to know whether Judge Brown would extend her ruling to other third parties who were not part of the litigation. As noted above, Judge Brown appeared initially reluctant to expand the scope of any ruling to others. But she was ultimately persuaded that the Final Rule should not apply at all.
Here is the critical language:
“The text of the APA means what it says.” Loper Bright Enters., 144 S. Ct. at 2262. Having concluded that (i) the FTC promulgated the Non-Compete Rule in excess of its statutory authority, and (ii) the Rule is arbitrary and capricious, the Court must “hold unlawful” and “set aside” the FTC’s Rule as required under § 706(2). As to the FTC’s argument that relief should be limited to the named Plaintiffs—the APA does not contemplate party-specific relief. See generally 5 U.S.C. § 706(2). “As [the Fifth Circuit] put it in a couple of recent cases, setting aside agency action under § 706 has ‘nationwide effect,’ is ‘not party-restricted,’ and ‘affects persons in all judicial districts equally.’” Braidwood Mgmt. Inc. v. Becerra, 104 F.4th 930, 951 (5th Cir. 2024) (internal citations omitted). Thus, the Court hereby holds unlawful and sets aside the Rule. See 16 C.F.R. § 910.1–.6.14 The Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter. See 16 C.F.R. § 910.1–.6.” (Emphasis added by me).
So What Does It All Mean? The FTC’s Noncompete has been set aside and cannot be enforced at this time. That means employers will not have to send out notices and their noncompetes remain enforceable, subject of course to the law of the state governing those agreements (more on that later).
Expect the FTC to appeal the ruling and attempt to have it set aside by the U.S. Court of Appeals for the Fifth Circuit. Stay tuned.
Note: I initially reported that Judge Brown issued a nationwide injunction in my zeal to get my post out. After rereviewing it, her ruling was a final judgment under Federal Rule of Civil Procedure 56, not an injunction under Rule 65. Based on the forceful language quoted above, the practical effect should be the same for employers, but I wanted to make that correction.