Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Amicus briefs support of FTC’s enforcement and implementation of its new noncompete rule, (Jun 4, 2024)

By Kenneth H. Ryesky, M.B.A., J.D.

Academics and Texas elected officials present their perspectives to the court that will decide whether to grant an injunction against the FTC's enforcement of its controversial new rule

Two amicus curiae briefs have been filed in the federal district court in Dallas, Texas in support of the FTC's defense against a challenge to implementing its newly released but not yet effective rule against noncompetition agreements. One amicus is a group of three law professors who specialize in administrative law, and the other is a group of elected local officials in Texas (Amicus briefs, Ryan, LLC v. FTC, No. 3:24-CV-00986-E (N.D. Tex. May 31, 2024)).

Background. In January 2023, the FTC issued a proposed rule that sweepingly banned non-compete clauses in employment contracts and retroactively invalidated such provisions in existing employment agreements. On April 23, 2024, following an extension of the public comment period during which many individuals and organizations weighed in with their views, the FTC issued the final version of its proposed rule; the final version, which differs only slightly from the initially proposed rule.

That very day, Ryan, LLC, a taxation consultancy business, filed a complaint against the FTC in federal district court in Dallas, Texas, seeking to stay the effective date of the FTC's final rule and/or to preliminarily enjoin enforcement of the rule. The U.S. Chamber of Commerce (USCC), which had early on made clear its opposition to the FTC's proposed rule with its own complaint, soon intervened in Ryan's Dallas case against the FTC. The USCC filed parallel motions and briefs to those submitted by Ryan.

The FTC filed its responding briefs to the motions of Ryan and the USCC. On May 31, 2024, two amicus curiae briefs were filed in support of the FTC's opposition. The amici on the first brief are three "law professors who teach and write in the fields of administrative law and statutory interpretation." (Scholars' brief), while the amici on the second brief "are twelve current and former local elected officials from across Texas" (Texas officials' brief). Respective counsel on each brief is an attorney from a tax-exempt sociopolitical advocacy organization, Washington, DC-based Democracy Forward Foundation on the Scholars' brief, and Oakland, California-based Public Rights Project on the Texas officials' brief.

The Scholars' brief. The amici Scholars assert that the new rule is pro-competitive, and "will greatly aid the mobility of the American labor force and incentivize employers to offer competitive compensation." As reflected in its intensive consideration of a broad spectrum of public comments, academic studies, and practical data analyses over an extended time period, the rule is a product of the FTC's due deliberation and has ample support.

The equitable relief sought by Ryan and the USCC requires, among other things, a showing of success on the merits. The amici Scholars argue that Ryan and the USCC have not made an adequate showing that success on the merits is likely. Harkening back to Fifteenth Century England, they point out that under the common law, employee noncompete agreements have long been recognized as "anticompetitive by design." Expanding upon these common law roots, the legislative establishment of the FTC has given that government even broader authority to implement pro-competitive rules and measures.

The new rule, say the amici Scholars, is "an ordinary exercise of the Commission’s well-established statutory authority" and accordingly not excludable from the powers delegated to the FTC by Congress under the so-called "major question doctrine" articulated in West Virgnia v. EPA, 597 U.S. 697 (2022). Nor was the new rule promulgated in violation of the nondelegation doctrine because it is consistent with the FTC's frequent historical exercise of its rulemaking powers and special expertise to rein in anticompetitive practices. In promulgating the new rule, the FTC properly exercised its authority.

The Texas officials' brief. The amici Texas officials assert that the new rule is pro-competitive, and, as with the amici Scholars, proffer arguments that the FTC (and not Ryan and the USCC) is likely to succeed on the merits. The amici Texas officials note that (1) creating and fostering small-businesses; (2) innovation; (3) affordable quality healthcare; and (4) good household income are four "building blocks for a strong Texas." Noncompete agreements, say the amici Texas officials, undermine those four "building blocks," especially because employers have other "less socially harmful means" to protect their legitimate interests. The Texas officials also note that there are exceptions in the FTC's new rule for "appropriately tailored" nondisclosure agreements.

The amici Texas officials emphasize that the FTC gave appropriate consideration to the costs and benefits of its new rule; specifically finding that noncompete agreements would adversely impact each of the "four building blocks." In the amici Texas officials' brief are cited scholarly empirical analyses showing that in situations such as the high-tech sector in Silicon Valley and the energy industry in Oklahoma and North Dakota, there is a direct correlation between the nonenforcement of noncompete agreements and a healthy economy.

The Texas officials note that their own state has already placed special restrictions on noncompete agreements for physicians, giving a hypothetical case of the effect upon community healthcare if physician is compelled to relocate 50 miles away on account of a noncompete agreement with his or her former employer.

The amici Texas officials also urge against delaying the effective date of the new rule, asserting that such delay would harm Texas communities because of the uncertainty such delay would spawn among employers and employees alike.

The case is No. 3:24-CV-00986-E.

Attorneys: Mark Samburg, Democracy Forward Foundation, for Amici Curiae. Darren P. Nicholson (Burns Charest, LLP) for Amici Curiae.

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