Employee Survival Guide® - Update on FTC Ban on Noncompetition Agreements

Starting point is 00:00:00 Hey, it's Mark here and welcome to the next edition of the Employee Survival Guide where I tell you, as always, what your employer does definitely not want you to know about and a lot more. It's Mark and welcome back to the Employee Survival Guide. I have an ongoing topic I want to discuss today with you. It's the update on the Federal Trade Commission ban on non-competition agreements. As you know, I'm extremely interested in the status of the Federal Trade Commission's September 4th, 2024 rule banning non-competition agreements, and I wanted to provide you with an update,

Starting point is 00:00:47 because there's an update. On August 20th, 2024, a federal court in Texas issued an order barring the Federal Trade Commission from instituting the new rule banning non-competition agreements nationwide. This was a blow to all employees nationwide. Currently, the FTC has filed a notice of appeal to the Fifth Circuit Court of Appeals on October 18, 2024. This means that the FTC is moving forward to appeal the final decision in the Northern District of Texas in the Ryan LLC versus FTC case. In that case, the court granted Ryan LLC's motion for summary judgment,

Starting point is 00:01:29 effectively banning the implementation of the FTC rule nationwide. The FTC has also filed the Record on Appeal, a requirement in filing appeals in the federal appellate courts, on 25th, 2024, indicating they are moving forward with the appeal. I checked the docket in the Fifth Circuit today, and the FTC's appeal brief is due on January 2nd, 2025. So someone's going to be busy during the holiday. We should expect a decision within six to eight months, but there are no time limits on the federal courts to render decisions. This should also give time for the other FTC case

Starting point is 00:02:10 to reach a final decision in the ATS Tree Service LLC versus FTC case in Pennsylvania federal court. But when I checked today, the docket in that case, I was given a little 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 judgment on August 22, 2024. On September 6, 2024, ATS Tree Service moved to stay the case pending the outcome of the appeal of the Fifth

Starting point is 00:02:46 Circuit Appeal in the Ryan LLC case. See, the two cases are linked together if you didn't know, in kind of a tangential way, well, in a political way. The judge in the case of the ATS Tree case, Judge Kelly Hodge wrote on October 3rd, 2024, a decision denying ATS motions to stay. And this is what the judge wrote. On April 25th, 2024, the plaintiff ATS Tree Services brought a case challenging the Federal Trade Commission's non-Complete Clause Rule, which bans the use of most non-compete clauses in employment contracts. Shortly after filing its complaint,

Starting point is 00:03:31 ATS moved for a stay of the effective date in preliminary injunction of the final rule. On July 23rd, 2024, this court denied ATS's motion, finding that ATS has failed to establish a reasonable likelihood that it would succeed on the merits of its claims and that the FTC lacks substantive rulemaking authority and exceeded its authority in enacting the rule. That was a big decision if you were a pro-employee.

Starting point is 00:03:58 The court then set a briefing schedule for the parties to argue motion for summary judgment. The same week ATS filed its complaint in this court, Ryan LLC, a tax services firm in Texas, filed a similar case challenging the final rule in the Northern District of Texas. In that case, it's Ryan LLC versus FTC. In Ryan, Judge Brown found that the rule exceeded the FTC's statutory authority, it was unconstitutional, and it is arbitrary and compretious, and consequently set aside the final rule via nationwide injunction. That was a big deal. ATS now moves for a stay in this case until the earliest of the following. Number one, the expiration for the federal trade commissions

Starting point is 00:04:46 to file a notice of appeal of the final judgment in Ryan, which it has already done now. If the commission appeals the Ryan judgment, a decision on the merits of the U.S. Court of Appeals in the Fifth Circuit, well, that's about a year away. Number three, any other event that changed the effectiveness of the Ryan judgment as to ATS. The judge wrote, further, ATS asserts that because the court and Ryan issued a nationwide

Starting point is 00:05:10 injunction of the rule, there is presently no final rule for the parties to litigate. That's an unusual situation. Thus, the judge wrote, a stay is warranted. 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. Having considered both parties' arguments and weighed the necessary factors, the judge wrote, the court has determined that a stay is not warranted. The party shall proceed with the summer judgment briefing. The judge goes on to say,

Starting point is 00:05:46 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 Rhine set aside the final rule nationwide, there is no rule to litigate. Therefore, to attempt to do so be a waste of both the parties and the court's resources." Which is true.

Starting point is 00:06:07 The court understands the position of the plaintiff is in, which they described as, quote unquote, awkward. It is true that at present there is no rule in place to litigate or ask the court to set aside. Again, in my opinion, very unusual, awkward situation in a federal court. However, the court judge goes on to say, 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 in joint does not mean that it is forever gone.

Starting point is 00:06:40 Both parties acknowledge that the FTC may appeal the court's decision, which it already has done, in the Ryan and the Fifth Circuit, an option that remains available to the FTC and creates some uncertainty as to the finality of the rule, which is true. There's an appellate process in our courts that has to be remedied and it can go all over the Supreme Court. The judge goes on to say, 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. The judge goes on to say what is clear is that the court does not, does have a responsibility in deciding the

Starting point is 00:07:17 issue as to the plaintiff. And there's more that the judge goes on to say. 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. The FTC argues that the public is in fact harmed by a stay because the court has the opportunity

Starting point is 00:07:43 and perhaps even the obligation to hear the case for itself and make determinations about the same questions that the court did in Ryan. That's what we were hoping for that this court and the ETS would do. There's a surprise at the end of this. I'll get to in a second. As the FTC notes, the judge says, spring court judges have extolled the value of the lower courts granting relief to redress

Starting point is 00:08:05 the injury sustained by a particular plaintiff in a particular lawsuit, in part because it allows multiple lower courts to weigh in on legal questions, thereby aiding the Spring Court's own decision-making process. That's judicial democracy, if you want to call it a phrase. Moreover the court says, The court is persuaded by the FTC's argument that granting the stay would give plaintiff two bites of the apple by allowing plaintiff to benefit from the Ryan injunction while preserving its ability to relitigate the issue in this case if the

Starting point is 00:08:38 FTC appeals that case and is successful on appeal, which could happen. The judge wrote, if ATS is satisfied with the outcome in Ryan and believes that it sufficiently addresses their claims, it is not obligated to continue litigating the case. But if it does not wish to withdraw here, then this court will move the case forward as its duty. So I just want to pause there. Anybody can pull their case out of federal court. No court can make you stay and continue to litigate.

Starting point is 00:09:10 A little hint about the surprise here in this case. Finally, with respect to the duration of the stay, the court appreciates the ATS has proposed several dates until which the state of the case to ensure that the state can be reevaluated as soon as practical. The court also recognizes that should the FTC appeal, the duration of the state could be months, if not years, because the FTC has not yet announced whether it will appeal and yada yada goes on. Taking into consideration the arguments put forth by ATS and the FDC and the factors of the court must consider, the court finds that the factors in favor of denying the motion to stay, allowing this case to move forward, would not be an unreasonable and inefficient

Starting point is 00:09:57 use of judicial resources. Most significantly, the court believes that it has an obligation, and I really want to put emphasis on this, an obligation to hear cases before and render its determination after thoughtful deliberation based on the facts and the law, thereby providing its analysis to higher courts lit against in the public." Sorry to run you through all that, but that's a significant piece of judicial history regarding this rule. And then here's now the surprise. On October 3rd, 2024, the same day the court issued this order, I just read from you, ATS Tree Service filed a motion to extend the deadlines for summer judgment, and the court granted the motion as it was unopposed by the

Starting point is 00:10:36 FTC. It doesn't say anything in the docket about why it was unopposed. But then on October 4th, one more day later, ATS Tree Service voluntarily dismissed its own case, which I said before has the power to do it. So there's no pending case in Pennsylvania because ATS has withdrawn its complaint against the Federal Trade Commission on this issue, and the only standing case out there is the Ryan LLC case about containing an injunction against the FTC's rule banning non-competes. So a very significant piece of

Starting point is 00:11:11 judicial history for employees and there are two important forces at play in the judge's decision. First, she recognized the ATS tree service can simply withdraw its own case and stand behind the ruling in Ryan LLC, case banning the FTC rule, in essence, ATS Tree Service and its employer supporters have won. Why push a case further if you'd achieve your goal to keep non-compete agreements in the workforce? You don't. But Judge Hodge reveals the other motives at play here.

Starting point is 00:11:40 She literally was pushing the parties to continue to litigate the case in her own 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 US 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 all this mean for you as an employee with a non-compete agreement

Starting point is 00:12:15 in light of the Ryan LLC and FTC versus FTC appeal now pending? If you have a non-compete, you cannot rely on the FTC rule banning non-compete agreements because the Ryan LLC court issued a nationwide 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 the old-fashioned breach of contract and non-compete case precedent to escape the one-sided non-compete agreement you have. It will take a year before we know the decision

Starting point is 00:12:55 by the Fifth Circuit Court of Appeals and the Ryan LLC case. It does not appear there are other cases brewing to challenge the enforcement of the FTC rule banning non-competes. 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 limited by executive order of the president.

Starting point is 00:13:24 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 non-compete agreements was and is a big win for all employees nationwide. There you have it. That's your update. That is literally what the status of law is

Starting point is 00:13:43 regarding this FTC rule. I went into the dockets, as I always do, to see what the judges were doing, the parties were doing, and we are left with just one case. And that's basically an enjoin FTC rule. So we have to wait and see. Hope you enjoyed this. Hope we found it helpful for you. And if you'd like more information, just don't hesitate to contact us. Thank you and have a good week.

Starting point is 00:14:12 If you like the Employee Survival Guide, I'd really encourage you to leave a review. We try really hard to produce information to you that's informative, that's timely, that you can actually use and solve problems on your own and at your employment So if you like to leave a review anywhere you listen to our podcast Please do so and leave five stars because anything less than five is really not as good, right? I'll keep it up. I'll keep it the standards up. I'll keep the information flowing at you If you'd like to send me an email and ask me a question, I'll actually review it and post it on there You can send it to mcaru at capclaw.com.

Starting point is 00:14:48 That's capclaw.com.

Employee Survival Guide® - Update on FTC Ban on Noncompetition Agreements

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