On August 14, 2024, the U.S. District Court for the Middle District of Florida in Properties of the Villages, Inc. v. Federal Trade Commission entered a limited injunction prohibiting the FTC from enforcing the Federal Trade Commission’s (FTC) non-compete rule against the named plaintiff, the Properties of the Villages, Inc. The FTC’s rule seeks to render almost all non-compete agreements unenforceable, with very limited exceptions. Notably, although employers may have hoped the court would grant more expansive relief, the Florida court very specifically declined to stay enforcement of the FTC rule generally or enter a nationwide injunction.

Therefore, generally, the non-compete rule is still set to take effect on September 4, 2024.

The Court’s Ruling

The court’s decision to grant the preliminary injunction was based on the major questions doctrine, which requires administrative agencies issuing rules of extraordinary economic and political significance to point to clear and unambiguous congressional intent to confer such power on the agency. The court analyzed the applicability of the doctrine and then congressional intent, ultimately finding the doctrine applied to the non-compete rule (an argument rejected by the U.S. District Court for the Eastern District of Pennsylvania in ATS Tree Services, LLC v. Federal Trade Commission, declining to enjoin the rule) and that the FTC did not have a valid grant of congressional authority to enact the rule.

The court began by weighing several factors identified by the Supreme Court to determine the applicability of the doctrine, finding two factors weighed in favor of applying the doctrine (i.e., the rule affects a significant portion of the American economy and non-competes have typically been within the domain of the states, and the rule is a hugely consequential expansion of regulatory authority as neither the FTC nor any other federal agency has previously tried to regulate non-competes in a meaningful way) and one factor weighed against (i.e., to the extent non-competes can be categorized as “unfair methods of competition,” the final rule can be considered as in the “wheelhouse” of the FTC under Section 5 of the FTC Act). The court nevertheless held that, on balance, given the sweep and breadth of the rule, including its application to existing contracts, it was substantially likely to be found to present a major question. In finding an insufficient grant of congressional authority for the FTC to enact the rule, the court relied on Section 6 of the FTC Act’s statutory and historical context including the FTC’s timing and lack of previous non-compete enforcement actions.

After finding the plaintiff showed a substantial likelihood of prevailing on the merits that the non-compete rule exceeds the FTC’s authority, the court determined the plaintiff established irreparable harm and the balance of equities and public interest favored entry of a preliminary injunction.

What’s Next?

For the named plaintiff, the effective date of the non-compete rule has been stayed and its enforcement has been enjoined until the court’s final adjudication on the merits. With this ruling, and after the Eastern District of Pennsylvania denied plaintiff’s motion for preliminary injunction of the non-compete rule in ATS Tree Services, LLC, all eyes are on Ryan, LLC v. Federal Trade Commission. In Ryan, LLC, the Northern District of Texas issued a stay and preliminary injunction limited to the plaintiff and plaintiff-intervenors, until the court’s final adjudication on the merits, which the court intends to complete by August 30, 2024. Whether the final decision in Ryan, LLC will remain the same (limiting relief to the parties), involve broader injunctive relief, or vacate the non-compete rule entirely, remains to be seen. 

With the September 4, 2024, notice deadline just weeks away and no nationwide injunctive relief currently in place, employers should consult legal counsel and evaluate appropriate strategies for their organizations after balancing the various risks involved.

Littler’s Workplace Policy Institute and Unfair Competition and Trade Secrets practice groups will continue monitoring these cases and keep readers apprised of significant developments.