Last week, the Federal Trade Commission (FTC) announced a new rule banning virtually all non-compete agreements, which is supposed to go into effect on August 21, 2024. Within hours of this announcement, two lawsuits were filed in Texas against FTC alleging that the agency did not have the authority to pass such a sweeping rule.
The Eastern District of Texas Has Ordered The Parties to Complete the Briefing by June 12, 2024
One of these cases – filed by the U.S. Chamber of Commerce – is moving very quickly. The court has ordered the parties to complete the briefing by June 12, 2024, and has announced that the final hearing on the matter will be set shortly after the briefing is complete.
In this case, the U.S. Chamber of Commerce is seeking a stay of the rule passed by the FTC and a preliminary injunction preventing the rule from going into effect on August 21, 2024. It argues that the final rule violates the Administrative Procedure Act as (1) outside the FTC’s rulemaking authority; (2) premised on a legally erroneous understanding of “unfair methods of competition”; (3) if statutorily authorized, then resting on an unconstitutional delegation of authority to the agency; (4) unlawfully retroactive; (5) not rationally connected to economic data; and (6) arbitrarily chosen without duly considering alternatives.
The district court ruled that since the Chamber’s arguments involve a pure issue of law – whether the FTC can pass the rule – no discovery will be necessary and the court may combine both the preliminary injunction hearing and the final hearing into a single proceeding, rather than two separate ones as is typically done.
Thus, within three days of the FTC’s announcement of the ban, the Eastern District of Texas has already ruled that it will decide the legality of the ban before its effective date on August 21, 2024, with enough time for the parties to appeal its decision to the Fifth Circuit Court of Appeals prior to the rule becoming effective.
What does this mean?
There is a high likelihood that the Eastern District of Texas will grant a preliminary injunction staying the rule, i.e. the rule will not actually go into effect on August 21, 2024.
The same federal court that is considering the FTC ban has previously struck down the joint employer rule passed by the National Labor Relations Board in March of this year. The lawsuit challenging the NRLB rule, just like this lawsuit, was brought by the U.S. Chamber of Commerce.
Additionally, in 2022, when OSHA attempted to pass a sweeping rule requiring all employers with 100 or more employees to require vaccination for COVID or weekly testing from employees, the U.S. Supreme Court struck down the rule on the grounds that “[a]lthough Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly.” In that case, it took less than 3 months from the date OSHA announced the rule to obtain a ruling from the US Supreme Court.
What Should Employers and Employees Do at This Time?
Everyone should continue to monitor the situation. You can do so by subscribing to my blog here. Employees should not ignore their non-compete restraints if they are in a jurisdiction that enforces them, and employers should not revamp their current agreements until we have a definitive ruling on whether the current ban will actually go into effect.
Leiza Dolghih is the founder of Dolghih Law Group PLLC. She is board certified in labor and employment law and has 16+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at leiza@dlg-legal.com or (214) 531-2403.