Civil Law

Just over a month ago, employers throughout the United States breathed a sigh of relief after Judge Ada Brown in the Northern District of Texas issued a summary judgment ruling in the Ryan v. FTC litigation setting aside the FTC’s rule banning the vast majority of non-competes (the “Rule”). In that decision, Judge Brown reasoned—just as she had in her order on the plaintiffs’ motion to stay and enjoin the Rule—that the FTC violated the APA because it “exceeded its statutory authority in implementing the Rule,” and the Rule is “arbitrary and capricious.”

While Judge Brown’s reasoning on summary judgment mirrored her earlier decision, there was one significant distinction: unlike the injunction, which only applied to the specific plaintiffs in the Ryan litigation, Judge Brown’s summary judgment decision had “nationwide effect” that is not “party restricted” and thus “affects persons in all judicial districts equally,” pursuant to Fifth Circuit precedent. As a result, employers were not required to comply with the Rule’s September 4 deadline to advise employees that their non-competes were unlawful and unenforceable.

Many wondered whether the FTC would appeal Judge Brown’s decision to the Fifth Circuit. Perhaps unsurprisingly, given the Fifth Circuit’s notorious antagonism towards agency action such as the FTC’s, no appeal has been filed (although the deadline to do so is not until October 21). But today, the FTC appealed a separate court decision: the Middle District of Florida’s August 15 decision granting a stay and enjoining the FTC’s enforcement of the Rule against the plaintiff in that case, Properties of the Villages (“POV”), which used slightly different reasoning to reach essentially the same result as the Ryan court’s decision to preliminarily enjoin the Rule. Presumably, the FTC sees the Eleventh Circuit as at least marginally more favorable to its cause than the Fifth Circuit, but it is unclear how this appeal will impact the Ryan court’s summary judgment ruling, which as noted above, is effective nationwide. Arguably, this appeal does not impact that decision at all, and one could argue that if the FTC had wanted to avoid the “nationwide effect” of Judge Brown’s ruling, it should have appealed that decision first and foremost, even if it faced a challenging audience in the Fifth Circuit.

Meanwhile, to complicate matters further, in the Eastern District of Pennsylvania, Judge Kelley Brisbon Hodge had, weeks prior to the Ryan summary judgment decision, come to the opposite conclusion—i.e. that the FTC had the authority to implement the Rule—when she denied plaintiff ATS Tree Services’ motion to stay and enjoin the Rule. That case remains pending, with summary judgment briefing due in the coming months. On September 6, 2024, ATS Tree Services sought to stay the litigation in light of the Ryan court ruling setting aside the Rule. The FTC has opposed a stay, noting its disagreement with the scope of the Ryan court ruling (in addition to its reasoning, of course). It is not clear when those motions will be decided, or whether the FTC’s latest move in appealing the POV litigation will impact Judge Hodge’s decision on the motion to stay. Nor is it clear why ATS Tree Services did not simply dismiss its case following the Ryan court’s summary judgment decision, as it could have relied upon the nationwide effect of that decision.

Regardless, the legality of the Rule will be appealed in one forum or another (if not in multiple fora), and it will remain important as always to comply with relevant state law while this issue works its way through the courts.

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