Two separate lawsuits have challenged the Federal Trade Commission’s ban on non-compete provisions and agreements: Chamber Of Commerce Of The United States Of America et al. v. Federal Trade Commission et al., Case No. 6:24cv148, filed in the District Court for the Eastern District of Texas; and Ryan, LLC v. FTC, Case No. 3:24cv986, filed in the District Court for the Northern District of Texas.
The Ryan, LLC case was filed one day before Chamber of Commerce. On May 3, 2024, the Chamber Of Commerce case was stayed under the first-to-file rule, so the legal challenge to the FTC’s non-compete rule will be litigated in the Ryan, LLC case. The plaintiffs in the Chamber of Commerce case may seek to join or have their case consolidated with Ryan, LLC.
The plaintiffs in Ryan, LLC raise largely the same arguments asserted in the Chamber of Commerce case. Specifically, the plaintiffs in Ryan, LLC argue:
• the FTC lacks authority under the FTC Act to issue substantive rules, as opposed to procedural rules
• the FTC “lacks the authority to ban non-competes by declaring them an unfair method of competition,” in part due to the sweeping, major reach of such a question
• if the FTC Act is interpreted to authorize the agency to issue the rule here, it would be an unconstitutional delegation of authority
• the FTC’s Commissioners lack constitutional authority to vote for the rule because their statutory removal protections are incompatible with the President’s exercise of his executive power
• the FTC “acted arbitrarily and capriciously,” in that the enforceability of non-compete clauses should be “determined on a case-by-case basis” under the rule of reason because they can be a “mutually beneficial, negotiated term of employment”
• the FTC acted arbitrarily and capriciously in failing to sufficiently consider alternative proposals
• the FTC acted contrary to law by retroactively invalidating non-compete clauses without individualized consideration such as envisioned by the Fifth Amendment
Look for further updates from Schwabe as this case progresses.
