FTC Appeals Decision in the Ryan Case: Fate of the Noncompete Rule Now Rests in the Appeals Courts
On Oct. 18, the Federal Trade Commission (FTC) expectedly filed a notice of appeal to the Fifth Circuit Court of Appeals in Ryan LLC et.al. v. Federal Trade Commission.
As has been previously reported, Judge Ada M. Brown in the Northern District of Texas had granted the plaintiffs’ request for summary judgment and set aside on a nationwide basis the FTC’s ban on noncompete agreements (the Rule), which was scheduled to take effect on Sept. 4.
Judge Brown’s decision was predicated on her concluding that the FTC lacked statutory authority to issue the Rule and that the Rule was “arbitrary and capricious” because it is “unreasonably overbroad without a reasonable explanation” and therefore constitutes unlawful agency action which must be set aside under the Administrative Procedure Act.
Around the same time, and, as also been widely reported, there have been two other cases involving challenges to the legality of the Rule recently decided by federal district courts in other jurisdictions.
In one of these, Properties of the Villages, Inc. v. FTC, a district court judge in the Middle District of Florida issued a preliminary injunction prohibiting the FTC from enforcing the Rule as to the named plaintiff, but not on a nationwide basis. On Sept. 24, the FTC filed an appeal to the Eleventh Circuit Court of Appeals.
In the other case, ATS Tree Services, Inc. v. FTC, a district court judge in the Eastern District of Pennsylvania sided with the FTC and denied the request of ATS Services for a preliminary injunction and a stay of the Rule’s effective date. On Sept. 6, ATS petitioned the court to temporarily stay the case because the relief it was seeking — setting aside the Rule — had already been ordered on a nationwide basis by the district court in Ryan. On Sept. 11, the FTC petitioned the court to deny ATS’s request for the stay. On Oct. 4, ATS Services filed a notice of voluntary dismissal.
Given that the Ryan and Properties Villages cases are now headed to the Court of Appeals in different federal districts (the Fifth Circuit in Ryan and the Eleventh Circuit in Properties Villages)and given the likelihood that the question as to the Rule’s validity will ultimately be before the Supreme Court, we will be publishing in the days ahead a comprehensive white paper considering in detail the critical issues that will determine the ultimate fate of the Rule, the reasoning that undergirds the decisions in all of the cases, how each differs from the others and what the ultimate outcome may be.