Employee Survival Guide® - Texas Court Blocks FTC Ban on Noncompete Agreements But the FTC Rule is Not Dead Yet

Episode Date: August 26, 2024

Comment on the Show by Sending Mark a Text Message.Are non-compete agreements holding back American workers? Join me, Mark, for a deep dive into the FTC's groundbreaking rule banning these contentious clauses and the fierce legal battles ignited by it. We'll dissect the pivotal Texas court decision that seeks to block the rule and its far-reaching implications for millions of employees. Understand how the Administrative Procedure Act and conflicting judicial opinions from Texas and Pennsylvania are shaping this debate, and what it all means for the upcoming presidential election. We'll also explore the economic consequences for employers and why the rule's enforcement date of September 4th, 2024, is crucial, pending appellate and Supreme Court reviews.But that's not all. We also tackle the issue of default management agreements that unduly control employees' financial and income affairs. Discover why these agreements are so problematic and how the FTC's new rule aims to protect worker rights. Take a look at Silicon Valley as a shining example of how businesses can flourish without restrictive non-compete clauses. This episode is packed with critical updates and insights that will keep you ahead of these evolving developments. Don’t miss out on this important and timely discussion!Links Mentioned in Episode:Ryan LLC v. FTC (Texas decision) FTS Tree Service v. FTC (Pennsylvania decision) If you enjoyed this episode of the Employee Survival Guide please like us on Facebook, Twitter and LinkedIn. We would really appreciate if you could leave a review of this podcast on your favorite podcast player such as Apple Podcasts. Leaving a review will inform other listeners you found the content on this podcast is important in the area of employment law in the United States. For more information, please contact our employment attorneys at Carey & Associates, P.C. at 203-255-4150, www.capclaw.com.Disclaimer: For educational use only, not intended to be legal advice.

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. Hey, it's Mark and welcome back. Today we are talking about the Texas court blocks the FTC ban on non-competition agreements, but the FTC rule is not dead yet. 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.

And you can read the decision in the show notes below. It's called Ryan LLC versus FTC. Non-competition agreements are an extremely important constraint on the working lives of employees and executives. I dove deep into this legal quagmire in an attempt to give you a straightforward explanation that will provide what the news media cannot. The following discussion unfortunately addresses the conflict between the rule of law and the political cycle.

But I offer an interesting viewpoint. The Texas decision is not controlling on employees outside of Texas, and the FTC rule will be effective on September 4th, 2024. There's the law, and then there's politics. First, what is meant by the rule of law? In its raw essence, courts are bound by previous case decisions, acts of Congress, and procedures. The Administrative Procedure Act dictates how a court must address and resolve disputes involving agency rulemaking, here the Federal Trade Commission, substantive regulation

to ban non-competitive agreements in employment. Simply the FTC cannot render arbitrary and capricious rules. It must have the authority to make rules as directed by Congress. The Texas court, Ryan LLC versus FTC, said that the FTC did not have this power, even though we all presume the FTC protects against unfair corporate behavior and non-compete agreements squarely fit into the FTC's jurisdiction.

Second, this is really a political issue to garner election support. In the left corner of the ring, there is a decision, FTS Tree Service versus FTC, by a Pennsylvania federal judge, a Biden appointee, that holds in favor of the FTC rule, and you can read the decision in the show notes below. In the right corner of this heavyweight title bout is a Trump appointee in a Texas case above Ryan LLC versus FTC. The August 20, 2024 Texas decision banned the enactment of the FTC rule on non-competition.

The FTC has 60 days to file a notice of appeal from the August 20th decision. As of this date of this podcast episode, the FTC has yet to file a notice of appeal in the August 20th decision. As of this date of this podcast episode, the FTC has yet to file a notice of appeal in the court docket. I checked, because I do. This is rather a simple procedure, and I do not expect the FTC to wait very long to file this notice.

Once filed, the appellate procedure takes over at the Fifth Circuit, and the FTC must comply with the Fifth Circuit of Court of Appeals rules. I suspect the case will be expedited given the political leverage the FTC will have on voters. Regarding the ATS Tree Service case in Pennsylvania, the court issued a scheduling order on August 22nd requiring ATS to file a motion for summary judgment by September 20th and the subsequent

briefs filed thereafter. ATS to file a motion for summary judgment by September 20th and the subsequent priests filed thereafter. Unfortunately, a decision will not be rendered by this court until after the November presidential election. This means the FTC fight will be held in the Fifth Circuit Court of Appeals and the Democrats must act fast if they want to push this case along before the election. The FTC could also push for an expedited review by the US Supreme Court, pursuant to a federal statute.

Expedited appeals are rare, but I believe the FDC rule warrants immediate constitutional review given the enormous economic impact on employees and executives whether or not the rule becomes effective on September 4th. The economic impact on employers is de minimis, as the FDC indicated that the cost of notifying employees of the new rule is roughly $27 per employee. Employers have no grounds to argue the economics here, as they benefited financially for decades due to the non-compete case law decisions in their favor,

and I have participated in many of those decisions in employees' clients who have been burned by this issue. It's just a matter of how politically important this issue is to voters. We have two political candidates running neck and neck here, Harrison versus Trump, and the political machines, if you know what that means in this country, may force the courts to address the very important issue before November. If you are looking through the correct lens, President Biden demanded the FTC issue the non-compete rule to garner favor among the nearly 160 million workers in this country in November.

There's an estimated 30 million employees who are covered by non-competed greens. Nothing has changed regarding this initiative now that Harris has taken over the DNC nomination for president. Presumptively, Harris has adopted and embraced the FTC rule as she needs all the voters she can muster in her hyphenated election bid.

The FTC rule is still effective on September 4th. I pored over the Texas and Pennsylvania court decisions. I have the following conclusions. Employees may still void their non-compete agreements because legally speaking, the FTC rule has not been enjoined. We have two federal district courts rendering opposite decisions in two parts of the country. Under the Pennsylvania ATS decision, the court refused to issue a preliminary injunction, while the Texas court in the Ryan case issued a national ban on FTC rule, although it previously

stated in the case that the case was limited to the parties before it. I question whether or not the Texas court has the authority to issue an order applicable to third parties beyond those in the case before the court. In the decision, there is no justification for the national coverage of the order, just that the judge said so. Given the national urgency of this issue and the FTC rule positively affects millions of employees nationwide, I cannot give the Texas court order the weight the judge arbitrarily assigns to it, especially in light of the conflicting decision from the federal judge in Pennsylvania.

This is not what our nation requires right now. I argued the FTC rule has not been banned and is effective on September 4th, and employees must push their employers against this issue individually. The enforceability of the FTC rule is undecided. The appellate courts, and eventually the Supreme Court, must weigh into this very important issue. I would be not surprised if this issue becomes a political football akin to the abortion debate in the current presidential election cycle. Employees literally can force their employers into court and cause state and federal courts around the country to decide which court, Texas or Pennsylvania, got it right as to whether the FTC has the power to subsequently regulate non-compete agreements in employment. More importantly, the Texas decision would be merely persuasive legal authority to any

court outside of the state of Texas, meaning other courts are not required to follow that decision. That is a lot of legal leverage for employees, and they must challenge the Texas court order in their local jurisdictions. Likewise, even if the employers took the offense and began just suing employees, leaving for competitors after September 4th, there would be a flood of cases to hit the dockets around the country. Overall, it was going to be a mess or in other words, a shit show.

And there is a lot of room for to negotiate and litigate over regarding the applicability of the STC ban on current and future non-compete agreements. I say employees and executives can and must challenge their employers in support of the enforcement of the FTC rule banning non-compete agreements after September 4th. The Texas court decision in Ryan LLC versus FTC is simply conclusory and holds the FTC cannot make substantive rules about quote unquote competition, which is ironic, and further that the FTC rule was arbitrary and capricious. When you read the Pennsylvania decision, the opposite is true.

The Pennsylvania court got it right, the Texas court did not. There are quite literally two polar opposite decisions, yet the Pennsylvania court decision is firmly grounded in supportive case decisions and congressional delegation of authority to issue substantive rule that the non-compete agreements are illegal restraint of trade on the American workforce. The battle over this issue has just begun, and employees should be mad as hell about

these one-sided default management agreements, as I've said all along, that dictate the financial and income affairs of millions of employees across this country. The FTC rule is good for employees and good for this country, regardless of the politics. Just ask Californians in San Jose and Santa Clara, they also called Silicon Valley because competition, non-compete agreements don't apply there. And well, as you know, business is good. I hope you are informed about this decision and what I've brought to your attention. It's beyond what the media has provided to you, and I'll follow up as things develop here.

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