As we beforehand reported, the U.S. Federal Commerce Fee (FTC) issued a Ultimate Rule which, on its anticipated efficient date of September 4, 2024, will invalidate practically all preexisting noncompetition agreements and bar employers from coming into into such restrictions with staff sooner or later.
Since then, the Ultimate Rule has been topic to authorized challenges nationwide. Shortly earlier than Independence Day, a Texas federal decide preliminarily enjoined the Ultimate Rule on a restricted foundation, concluding that the plaintiffs within the case earlier than the courtroom had been probably to reach displaying that the FTC overstepped its authority when it issued the Ultimate Rule. Nevertheless, the decide in that case declined to enter a nationwide injunction and restricted her order solely to the particular plaintiffs in that case.
Following that call, the chances appeared to favor that different challenges to the Ultimate Rule can be determined equally, with judges both enjoining the Ultimate Rule outright or on a restricted foundation because the Texas decide did, however a Pennsylvania federal district courtroom decide issued a stunning endorsement of the Ultimate Rule when she denied a request to enjoin the Ultimate Rule.
On July 10, 2024, the FTC argued to Decide Kelley Brisbon Hodge of the U.S. District Court docket for the Jap District of Pennsylvania that the FTC’s mission is to forestall unfair strategies of competitors, and thus the Ultimate Rule falls squarely inside its rule-making authority. The Pennsylvania plaintiffs, not surprisingly, disagreed and asserted most of the arguments that the plaintiffs within the Texas motion had efficiently asserted. The Pennsylvania plaintiffs additionally emphasised the U.S. Supreme Court docket’s June 2024 landmark choice overruling what had come to be generally known as “Chevron deference” – the authorized precept that company interpretations and rulemaking are entitled to deference from the courts – insisting that the FTC overreached and tried to effectuate an end-run round legislative processes by adopting the Ultimate Rule. (See our colleagues’ protection of that call right here.)
On July 23, 2024, Decide Hodge issued her choice. In a pointy departure from her Texas judicial counterpart, Decide Hodge concluded {that a} preliminary injunction can be improper as a result of the plaintiffs within the Pennsylvania case had not demonstrated that they might undergo any irreparable hurt within the absence of such reduction.
Going a step additional, Decide Hodge additionally opined that the plaintiffs within the Pennsylvania continuing are unlikely to reach their substantive problem to the Ultimate Rule. She concluded that the FTC Act expressly empowers the FTC “to make guidelines and laws for the aim of finishing up the provisions” of the statute, which embrace “stop[ing]…unfair strategies of competitors.” Because the FTC Act grants the FTC the authority to “stop” unfair competitors, Decide Hodge reasoned that this delegation should essentially embrace the authority to make potential guidelines supposed to effectuate that function and never solely to redress harms that have already got occurred. Lastly, the courtroom examined earlier selections wherein courts confirmed the FTC’s rulemaking authority and Congressional actions—particularly, amendments to the FTC Act—supporting that expanded authority, all of which bolstered her conclusion that the FTC didn’t overstep in enacting the Ultimate Rule, even inasmuch as it could upend practically all noncompetition covenants.
These inconsistent judicial determinations complicate issues for employers making an attempt to find out their compliance obligations previous to the anticipated efficient date. No decide has issued a nationwide injunction barring implementation of the Ultimate Rule; solely the plaintiffs earlier than the courtroom within the Texas continuing have been granted a preliminary injunction. Nevertheless, employers can moderately anticipate that the Pennsylvania plaintiffs will enchantment Decide Hodge’s choice, and the decide within the Texas continuing indicated that she is going to difficulty a call on the deserves of the case—which can nonetheless embrace a nationwide injunction—on or earlier than August 30, 2024, simply days earlier than the Ultimate Rule’s September 4, 2024 efficient date. We’ll proceed to well timed report on developments because the efficient date attracts close to.