By Mark Carey
I am extremely interested in the status of the Federal Trade Commission’s September 4, 2024, rule banning noncompetition agreements and I wanted to provide you with an update.
On August 20, 2024, a federal court in Texas issued an Order barring the Federal Trade Commission from instituting the new rule banning noncompetition agreements nationwide. This was a blow to all employees nationwide. I wrote an Article about this on August 23, 2024.
Currently, the FTC has filed a Notice of Appeal to the Fifth Circuit Court of Appeals on October 18, 2024. This means the FTC is moving forward to appeal the final decision in the Northern District of Texas Ryan LLC v. FTC case. In that case, the court granted Ryan LLC’s motion for summary judgment effectively banning the implementation of the FTC rule nationwide. The FTC has also filed the Record on Appeal on November 25, 2024, indicating they are moving forward with the appeal. I checked the docket in the 5th Circuit Court of Appeals and the FTC’s appeal brief is due on January 2, 2025. We should expect a decision within six to eight months, but there are no time limits on federal courts to render decisions. This should also give time for the other FTC case to reach a final decision in the ATS Tree Service, LLC v. FTC case in the Pennsylvania federal court. But when I checked the docket in that case, I was given a surprise!
I checked in on the ATS Tree Service case and the docket shows the following information. The Court set the case down for briefing on ATS Tree Service motion for summary judgement on August 22, 2024. On September 6, 2024, ATS Tree Service moved to stay the case pending the outcome of the appeal to the 5th Circuit in the Ryan LLC case.
Judge Kelly B. Hodge wrote in her October 3, 2024 decision denying the motion to stay filed by ATS Tree Service:
“On April 25, 2024, Plaintiff ATS Tree Services, LLC (“ATS”) brought a case challenging the Federal Trade Commission’s (“FTC”) Non-Compete Clause Rule (“the Final Rule” or “the Rule”), which bans the use of most non-compete clauses in employment contracts. Shortly after filing its Complaint, ATS moved for a Stay of the Effective Date and Preliminary Injunction of the Final Rule. (ECF No. 10). On July 23, 2024, this Court denied ATS’s motion, finding that ATS had failed to establish a reasonable likelihood that it would succeed on the merits of its claims that the FTC lacks substantive rulemaking authority and exceeded its authority in enacting the rule. (ECF No. 81). The Court then set a briefing schedule for the parties to argue motions for summary judgment. (ECF No. 83). The same week ATS filed its complaint in this court, Ryan, LLC, a tax services firm, filed a similar case challenging the Final Rule in the Northern District of Texas.2 See Ryan, LLC v. Fed. Trade Comm’n, No. 3:24-CV-00986-E (N.D. Tex.). In Ryan, Judge Brown found that the Rule exceeded the FTC’s statutory authority, is unconstitutional, and is arbitrary and capricious, and consequently set aside the Final Rule via a nationwide injunction of the Rule. See generally Ryan, LLC v. Fed. Trade Comm’n, No. 3:24-CV-00986- E, 2024 WL 3879954 (N.D. Tex. Aug. 20, 2024)
ATS now moves for a stay in this case until the earliest of the following events: (1) the expiration of time for the Federal Trade Commission to file a notice of appeal of the final judgment in Ryan; (2) if the Commission appeals the Ryan Judgment, a decision on the merits from the U.S. Court of Appeals for the Fifth Circuit; or (3) any other event that changes the effectiveness of the Ryan Judgment as to ATS. (ECF No. 84 at 1). ATS asserts that because the court in Ryan issued a nationwide injunction of the Rule, “there is presently no Final Rule for the parties to litigate,” and thus a stay is warranted. (Id. at 1-2). The FTC opposes ATS’s motion for a stay, arguing that the fact that another district court has set aside the rule “will not necessarily overtake Plaintiff’s claims in this case.” (ECF No. 86 at 4). Having considered both parties’ arguments and weighed the necessary factors, the Court has determined that a stay is not warranted. The parties shall proceed with summary judgment motions…
In arguing for a stay, ATS is largely focused on the first prong of the analysis- preservation of judicial economy. ATS repeatedly states that because the court in Ryan set aside the Final Rule nationwide, there is no Rule to litigate, therefore, to attempt to do so would be a waste of both the parties’ and the Court’s resources. (ECF No. 85 at 2). The Court understands the position Plaintiff is in, which they describe as “awkward” (Id. at 4); it is true that at present there is no Rule in place to litigate or ask this Court to set aside. However, the Plaintiff must assess and determine how it wishes to proceed with the litigation of this case in light of the circumstances. The fact that the Rule is currently enjoined does not mean that it is forever gone. Both parties acknowledge that the FTC may appeal the Court’s decision in Ryan to the Fifth Circuit, an option that remains available to the FTC and creates some uncertainty as to the finality of the Rule. However, the Court does not have a crystal ball to predict what may happen regarding the Rule, nor will the Court make its decisions based on speculation on that issue. What is clear is that this Court does have a responsibility in deciding the issue as to this Plaintiff…
As to the second factor—the balance of harms—ATS makes the case that no one is harmed by a stay in this case because unless and until the Fifth Circuit reverses the Ryan injunction, the current state of the Rule will not change. (ECF No. 85 at 5). The FTC argues that the public is in fact harmed by a stay, because this Court has the opportunity, and perhaps even the obligation, to hear the case for itself and make determinations about the same questions that the court did in Ryan. (ECF No. 86 at 4). As the FTC notes, Supreme Court Justices have extolled the value of lower courts granting relief “to redress the injuries sustained by a particular plaintiff in a particular lawsuit,” in part because it allows multiple lower courts to weigh in on legal questions, thereby “aid[ing] [the Supreme] Court’s own decisionmaking process.” DHS v. New York, 140 S. Ct. 599, 600 (2020) (mem.) (Gorsuch, J., concurring in the grant of a stay). Moreover, the Court is persuaded by the FTC’s argument that granting the stay would give Plaintiff “two bites at the apple,” by allowing Plaintiff to benefit from the Ryan injunction while preserving its ability to relitigate the issue in this case if the FTC appeals that case and is successful on appeal. (ECF No. 86 at 5 (quoting FDA v. Alliance for Hippocratic Med., 602 U.S. 367, 403 (2024) (Thomas, J., concurring)). If ATS is satisfied with the outcome in Ryan and believes it sufficiently addresses their claims, it is not obligated to continue litigating this case, but if it does not wish to withdraw here, then this Court will move the case forward as is its duty. Finally, with respect to duration of the stay, the Court appreciates that ATS has proposed several dates until which to stay the case “to ensure that the stay can be reevaluated as soon as practicable.” (ECF No. 85 at 6). The Court also recognizes that should the FTC appeal, the duration of the stay could be months, if not years. (ECF No. 86 at 6). Because the FTC has not yet announced whether it will appeal Ryan, at this point the duration of the stay is essentially unknown. Taking into consideration the arguments put forth by ATS and the FTC, and the factors the Court must consider, the Court finds that the factors weigh in favor of denying the motion to stay. Allowing this case to move forward would not be an unreasonable or inefficient use of judicial resources. Most significantly, the Court believes that it has an obligation to hear cases before it and render its determination after thoughtful deliberation based on the facts and the law, thereby providing its analysis to higher courts, litigants and the public.”
On October 3, 2024, ATS Tree Service filed a motion to extend the deadlines for summary judgment and the court granted the motion as it was unopposed by the FTC. But then on October 4, 2024, ATS Tree Service voluntarily dismissed its’ own case, which is has the power to do.
There are two important forces at play in the judge’s decision. First, she recognizes ATS Tree Service can simply withdraw its’ own case and stand behind the ruling in the Ryan LLC case banning the FTC rule. In essence, ATS Tree Service and its “employer supporters” won! Why push a case further if you achieved your goal to keep noncompete agreements in the workforce? You don’t! But Judge Hodge reveals the other motives at play here. She literally was pushing the parties to continue to litigate the case in her court even though another federal court issued a nationwide injunction of the FTC rule. This was very unusual indeed. This was more than just the interest of justice, this was a political move by a judge seeking to enforce the FTC ban and cause a split in decisions, eventually forcing the U.S. Supreme Court to remedy the issue. ATS Tree Service then wisely withdrew their case entirely, which they can do. No judge can force a party to continue to litigate a case they do not want to continue with.
What does this all mean for you as an employee with a noncompetition agreement in light of the Ryan LLC v. FTC appeal now pending? If you have a noncompete, you cannot rely on the FTC rule banning noncompete agreements because the Ryan LLC court issued an injunction against the rule. Employees were hopeful, including myself, that the ATS Tree Service case would continue to a final decision on the merits, but that case is now dead! As an employee, you are left with old fashion breach of contract and noncompete case precedents to escape the one sided noncompete. It will take a year before we know the decision by the 5th Circuit Court of Appeals in the Ryan LLC case. It does not appear there are any other cases brewing to challenge the enforcement of the FTC rule banning noncompetes. The Ryan LLC case could eventually reach the U.S. Supreme Court on its own, but once the Trump team enters the White House, there may be significant changes in policy at the FTC board level causing the FTC Rule to be withdrawn or eliminated by executive order of the President. We have to wait and see if President Elect Trump is kinder and gentler to the American Workforce. Let’s hope he is because the FTC rule banning noncompete agreements was and is a big win for all employees nationwide.
If you would like more information about this article or to speak with an employment attorney, please contact Carey & Associates, P.C. at info@capclaw.com.