The Federal Trade Commission (FTC) has appealed a Texas federal district court decision invalidating its rule governing non-competition agreements.
In August 2024, in the case of Ryan LLC v. Federal Trade Commission, Judge Ada Brown of the Northern District of Texas ruled that the FTC had exceeded its authority when it adopted a regulation essentially banning non-competition agreements in the United States.
Judge Brown issued a preliminary injunction against the rule in July, and in August granted plaintiffs’ motion for summary judgment, which constitutes a final decision at the district court level. The FTC filed its appeal on October 18, 2024, and we expect it will take at least six months before the U.S. Court of Appeals for the Fifth Circuit issues its decision.
In addition to finding that the FTC exceeded its statutory rulemaking authority, Judge Brown held that the rule was arbitrary and capricious, because it is unreasonably broad without a reasonable basis, contrary to the law governing rulemaking by federal agencies. These two holdings are independent of each other, meaning that on appeal, the FTC will likely have to persuade the Fifth U.S. Circuit Court of Appeals that both of them are wrong in order to salvage its rule.
Meanwhile, two other cases challenging the FTC’s rule are percolating elsewhere in the federal judicial system. In July, a District Court in Philadelphia went the other way in declining to enjoin the rule; that case remains pending at the district court level.
A Florida court issued its own preliminary injunction on August 15, 2024; the FTC appealed that injunction to the 11th U.S. Circuit Court of Appeals on September 24. That appeal, however, is only of a preliminary injunction, and no matter how the 11th Circuit rules, the case will have to be remanded to Florida district court for further proceedings.
The Texas case, therefore, remains the one to watch for two reasons. First, Judge Brown gave her decision nationwide effect, so until and unless a higher court overturns that decision, the FTC cannot enforce the rule. Second, by granting plaintiffs’ motion for summary judgment, Judge Brown issued a final judgment, so that if the 5th Circuit agrees with either of the two grounds for her decision, there will likely be no remand, and the case will be the first one ripe for appeal to the U.S. Supreme Court.