Federal Trade Commission Non-Compete Ban Put on Ice…For Now

On Tuesday, August 20, 2024, United States District Judge Ada Brown issued a nation-wide injunction stopping the scheduled September 4^th implementation of the Federal Trade Commission’s rule that eliminated almost all non-compete agreements. The ruling was widely expected given Judge Brown’s earlier ruling blocking the ban in Texas in which she expressed significant skepticism regarding the power of the Federal Trade Commission (FTC) to adopt and implement the rule.  In Tuesday’s ruling, the Judge held the FTC had overstepped its statutory authority, and that the rule was “unreasonably broad without a reasonable explanation” making it “arbitrary and capricious”.

The FTC is considering whether to appeal the ruling, which is likely, especially given the fact that another Federal District Judge in Philadelphia rejected a request to issue an injunction against the ban last month, ruling that the FTC has the authority “to prevent unfair methods of competition in commerce “under the 1914 Federal Trade Commission Act and that the Plaintiff’s in that action would not be irreparably harmed by the rule going into effect.

Assuming the FTC does appeal the Texas ruling, the appeal will go to the Fifth Circuit Court of Appeals, one of the most conservative in the county, which likely means the injunction will remain in place unless or until the issue heads to the Supreme Court for resolution. Given the Supreme Court’s recent decision reversing the Chevron doctrine under which the Courts deferred to the expertise of federal agencies in interpreting U.S. laws deemed to be ambiguous, the non-compete ban faces an uphill battle at the Supreme Court due to the lack of explicit direction from Congress on the issue and the huge impact the ban would have on existing non-compete agreements covering an estimated 20% of workers- roughly 30 million people.

In the meantime, a spokeswoman for the FTC states that the Texas decision does not “prevent the FTC from addressing non-competes through case-by-case enforcement actions.” It is also likely that a few States, including Michigan, will consider taking their own action in limiting non-compete agreements now that the FTC ban is on ice for the foreseeable future. Until any such action, non-compete agreements remain enforceable in Michigan as long as they serve a legitimate business purpose and are reasonable as to both the length of enforcement and the geographic area covered by the agreement.

The Employment Team at Rhoades McKee will continue to closely monitor developments in non-compete law and stands ready to assist Michigan employers in understanding how to successfully implement and enforce non-compete agreements to protect their business from unfair competition by former employees.