Antitrust Law Daily Wrap Up, ANTITRUST—M.D. Fla.: Court, diverging from ATS, finds major questions doctrine implicated in FTC final non-compete rule, (Aug 16, 2024)

By Justin Marcus Smith, J.D.

The court only enjoined the FTC from enforcing the final rule with respect to the single real estate brokerage plaintiff that brought the matter.

Properties of the Villages, Inc., holding itself out as a specialized form of estate brokerage, showed a substantial likelihood of success on its claim that the FTC final rule barring non-competes exceeded its authority under the FTC Act, held the federal district court in Jacksonville, Florida. The court said it was dealing only with the final rule itself, based on the law, and not on the policy questions of the proper role of non-competes in the American economy; however, the court found the rule so extraordinary in breadth and scope that it implicated the Major Questions Doctrine (MQD), which requires clear Congressional authorization for agency rulemaking. The court found Properties also satisfied the irreparable harm element based on “more than de minimis” compliance costs and business disruption and the other elements necessary for a preliminary injunction. The court accordingly entered a preliminary injunction prohibiting enforcement of the final rule only as to Properties. The court noted how the federal district court in Philadelphia recently denied a similar motion for preliminary injunction based on similar MQD arguments in the matter ATS Tree Services, LLC v. FTC, No. 2:24-cv-01743-KBH (E.D. Pa. July 23, 2024) (Properties Of The Villages, Inc. v. FTC, No. 5:24-cv-00316-TJC-PRL (M.D. Fla. Aug. 15, 2024)).

Background. In June 2024, Properties sued the FTC seeking vacatur and related relief under the Administrative Procedure Act pertinent to the FTC’s final rule banning nearly all non-compete agreements in employment contracts. The FTC voted to adopt the final rule on April 23, 2024 and published it in the Federal Register on May 7, 2024. The rule is to go into effect on September 4, 2024. The Final Rule “provides that it is an unfair method of competition for persons to, among other things, enter into non-compete clauses (“non competes”) with workers on or after the final rule’s effective date.”

Other businesses have been challenging the rule and seeking preliminary injunctions, with varying success. On July 3, 2024, the federal district court in Dallas granted tax consultancy Ryan, LLC’s motion to preliminarily enjoin FTC enforcement, but only as applied to the Ryan LLC plaintiffs and plaintiff-intervenors, not nationwide. The Ryan court held the FTC does not have substantive rulemaking authority about unfair methods of competition under Section 6(g) of the FTC Act. The Ryan matter prompted U.S. Chamber of Commerce (USCC) intervention against the FTC as well as scholarly and elected official amicus briefs in support of the FTC.

Meanwhile, a Bucks County, Pennsylvania tree service, ATS Tree Service, Inc. (ATS) had less luck. In April, 2024, ATS filed a complaint of its own challenging the final rule as exceeding FTC authority, but the federal district court in Philadelphia denied ATS’ motion for a preliminary injunction. The court held ATS did not have a likelihood of success on the merits as toe the MQD (see Antitrust Law Daily, July 24, 2024).

Properties says it is a specialist real estate brokerage that allegedly provides “intensive” three-month training to its contract real estate sales associates about selling homes in The Villages retirement enclave. It asked the court to declare: 1) the FTC lacks substantive rulemaking authority over unfair methods of competition; 2) the FTC exceeded its statutory authority under the FTC Act, including as to the MQD; 3) the rule is impermissibly retroactive; 4) the rule violates the Commerce Clause as applied to Properties; and, 5) the rule violates the nondelegation doctrine. Properties asked the court to enjoin enforcement of rule and to issue an order staying enforcement of the rule against Properties during pendency of the Properties case.

Injunction granted. The court granted Properties’ motion for preliminary injunctive relief. The court held that recent Supreme Court jurisprudence, combined with the breadth and scope of the FTC’s final rule, required the court to consider the FTC’s authority to issue the final rule in the context of the major questions doctrine (MQD). The court said the key MQD principle is that agencies that promulgate rules of “extraordinary” significance must point to the clear and unambiguous authorization of Congress. Among other circumstances pertinent to MQD applicability, the court noted that the FTC estimates the final rule will affect about 30 million employees, about 20% of the total workforce, with costs and benefits “hard to measure with precision.” The FTC’s estimated $400-$488-billion-dollar wage windfall would be a “significant economic impact by anyone’s measure.” During oral argument, the court also considered a 2.7% “impact on business revenue” estimate. Among other political impact questions, the court noted the final rule would preempt state laws about non-competes, in in interaction with long-standing common law, and that one of the FTC majority commissioners said she was still hoping for legislative action.

The court acknowledged that the final rule could be considered to address an “unfair method of competition,” and the FTC Act “does contemplate” that FTC rulemaking can affect large sums of money. However, “on balance” the sweep and breadth of the final rule and its applicability to existing contracts meant the rule “presents a major question as defined by the Supreme Court.”

The court then turned to the recent ATS decision wherein a federal district court denied a similar request for injunctive relief based on comparable MQD arguments. The court said it did not take issue with the ATS court’s finding that unfair competition is within the FTC’s “core mandate.” However, it parted ways with ATS on Section 6(g) of the FTC Act and whether there was clear Congressional authorization for the rule. This court, unlike the ATS court, accordingly found a likelihood of success on the merits with respect to the final rule under the MQD.

Properties’ arguments. Properties, in its motion for a preliminary injunction, had emphasized it was “implausible that Congress hid this elephant-sized rulemaking authority in the unassuming mousehole of Section 6(g).” It also questioned retroactivity and argued that Section 5 continued to require FTC to adjudicate non-competes “on a base-by-case basis, subject to judicial review.”

Properties then invoked the major questions doctrine (MQD) and the canon of constitutional avoidance, both of which, it said, “further counsel against the FTC’s interpretation.” Properties said FTC authority to issue the rule was “undeniably a major question, involving an assertion of novel, sweeping power in an area of great economic and political significance.” It continued that applying the rule to Properties’ “purely intrastate labor agreements” raised “serious constitutional concerns” under the Commerce Clause and the non-delegation doctrine.

Properties then explained again its specific need for the non-competes it has with its sales associates, based on training and other factors arguably specific to The Villages real estate development. Among other details, it said it provides a stipend to its contract sales associates in the form of an advance on future commissions to enable its new sales associates to participate in training full time. It also claimed its sales associates “benefit from a steady stream” of prospective sales leads “based on [Properties’] brand, goodwill, and efforts to attract potential residents[.]”

The Case is No. 5:24-cv-00316-TJC-PRL.

Judge: Corrigan, T.

Attorneys: Stacey K. Grigsby (Covington & Burling LLP) for Properties of the Villages, Inc. Rachael Westmoreland, U.S. Department of Justice, for the FTC.

Companies: Properties of the Villages, Inc.

Cases: Antitrust FloridaNews