Preliminary Analysis on the Ryan Court’s Order Enjoining the FTC’s Ban on Non-Competes

Commentary: 

The Court ruled on Wednesday, July 3, what most of the legal community already believed: that the FTC lacked the substantive rulemaking authority to issue a nationwide ban on non-competes between employers and workers. Nevertheless, the  ruling itself is not likely one that anyone expected.   

On the one hand, the Court enjoined the FTC Rule, holding that “the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g).”  However, the Court then turned around and only applied that injunction to the FTC Rule as it applied to the named plaintiffs, arguing that the plaintiffs failed to sufficiently brief a nationwide injunction or associational standing. Accordingly, the Court left the FTC Rule in place for every other otherwise affected employer in America. 

Ultimately, the Court has managed to thread the needle in such a way as to likely make everyone who reads the ruling unhappy. All of the necessary analysis is present to strike down the FTC Rule. Nevertheless, the Order leaves the whole world uncertain as to whether further briefing and a ruling on the merits will ultimately lead to a nationwide injunction or narrow relief just for the named parties. The Court also left open whether the Rule is unconstitutional under the Major Questions Doctrine and Non-Delegation Doctrine, issues that both sides heavily briefed.

The Court intends to rule on the ultimate merits of this action on or before August 30, 2024, only five days before the effective date of the Rule for everyone other than the named plaintiffs. This likely means many of the issues raised above may not be resolved until then. 

---

Ruling: 

• The Federal Trade Commission (FTC) and its respective agents, servants, employees, and attorneys, and all persons acting in concert with the FTC are wholly enjoined from implementation of or enforcement of the Non-Compete Rule—16 C.F.R. § 910.1-.6—against Plaintiff Ryan, LLC, from the date of this order to the Court’s final adjudication on the merits. The Court hereby stays the effective date of the Rule as to Plaintiff Ryan, LLC.
• The Federal Trade Commission (FTC) and its respective agents, servants, employees, and attorneys, and all persons acting in concert with the FTC are wholly enjoined from implementation of or enforcement of the Non- Compete Rule—16 C.F.R. § 910.1-.6—against Plaintiff Intervenors: Chamber of Commerce of the United States of America; Business Roundtable; Texas Association of Business; and Longview Chamber of Commerce, from the date of this order to the Court’s final adjudication on the merits. The Court hereby stays the effective date of the Rule as to these Plaintiff-Intervenors.

While this order is preliminary, the Court intends to rule on the ultimate merits of this action on or before August 30, 2024.

Analysis:

The Court granted a preliminary injunction because:

• There was a likelihood of success on the merits:
• “[T]he text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g).”  Order 1.
• Plainly read, the Court concludes the FTC has some authority to promulgate rules to preclude unfair methods of competition. Indeed, the Act says as much by alluding to this power in 15 U.S.C. § 57a. See 15 U.S.C. § 57a.
• However, after reviewing the text, structure, and history of the Act, the Court concludes the FTC lacks the authority to create substantive rules through this method. Section 6(g) is “indeed a ‘housekeeping statute,’ authorizing what the APA terms ‘rules of agency organization procedure or practice’ as opposed to ‘substantive rules.’” Chrysler Corp. v. Brown, 441 U.S. 281, 310, 99 S. Ct. 1705, 1722, 60 L. Ed. 2d 208 (1979).
• The Rule is “arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation. It imposes a one-size-fits-all approach with no end date, which fails to establish a ‘rational connection between the facts found and the choice made.’”  Order 21 (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S. Ct. 2856, 2867 (1983) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S. Ct. 239, 246, 9 L. Ed. 2d 207 (1962)).
• The Court did not address arguments about whether the Ban is invalid because it represents a “Major Question” Doctrine or runs afoul of the “Non-Delegation Doctrine,” two constitutional rules of interpretation that the opponents of the Ban raised in their briefing.

• Irreparable harm: “Given Plaintiffs’ nonrecoverable costs of complying with the Rule, bolstered by the FTC’s failure to make a developed responsive argument, the Court concludes Plaintiffs have met their burden of showing irreparable harm in the absence of injunctive relief.”  Order 27.
• Balance of Equities and Public Interest:
• “On this record, it is evident that if the requested injunctive relief is not granted, the injury to both Plaintiffs and the public interest would be great.” Order 28.
• “Granting the preliminary injunction serves the public interest by maintaining the status quo and preventing the substantial economic impact of the Rule, while simultaneously inflicting no harm on the FTC.” Id.
• “Further, the Rule makes unenforceable long-standing contractual agreements that have been judicially recognized as lawful and beneficial to the public interest.” Id.

The Court declined to grant further relief, leaving the door open for a nationwide injunction and associational standing with further briefing.

• No nationwide injunction:  Despite Ryan asking for a nationwide injunction, the Court declined to extend the relief beyond the named plaintiffs. 
• The court recognized that a court has the power “in appropriate circumstances, to issue a nationwide injunction.”  Id. at 30. 
• Nevertheless, because of the limited guidance provided by the Fifth Circuit as to what are such “appropriate circumstances”, the Court declined “to view the circumstances of this proceeding as an “appropriate circumstance that would merit nationwide relief.” 
• The Court noted Plaintiffs failed to brief “how or why nationwide injunctive relief is necessary to provide complete relief to Plaintiffs, at this preliminary stage.”
• No associational standing:   Despite Intervenor-Plaintiffs seeking associational standing, the Court declined to grant such relief for failure to sufficiently brief it:
• “Plaintiff-Intervenors have directed the Court to neither sufficient evidence of their respective associational member(s) for which they seek standing, nor any of the three elements that must be met regarding associational standing.”  Order 31.
• “Without such developed briefing, the Court declines to extend injunctive relief to members of Plaintiff-Intervenors.”  Id.