S5 Ep90: Texas Court Blocks FTC Ban on Noncompete Agreements But the FTC Rule is Not Dead Yet

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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)

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Disclaimer: For educational use only, not intended to be legal advice.

Episode Transcript

Speaker 1 (00:02):
Hey, it's Mark and welcome back.
Today we're talking about theTexas court blocks the FTC ban
on non-competition agreements.
But the FTC rule is not deadyet.
On August 20th 2024, a federalcourt in Texas issued an order
barring the Federal TradeCommission from instituting the

(00:22):
new rule banning non-competitionagreements nationwide.
This was a blow to allemployees nationwide and you can
read the decision in the shownotes below.
It's called Ryan LLC v FTC.
Non-competition agreements arean extremely important
constraint on the working livesof employees and executives.
I dove deep into this legalquagmire in an attempt to give

(00:44):
you a straightforwardexplanation that will provide
what the news media cannot.
The following discussionunfortunately addresses the
conflict between the rule of lawand the political cycle, but I
offer an interesting viewpoint.
The Texas decision is notcontrolling on employees outside
of Texas and the FTC rule willbe effective on September 4,

(01:06):
2024.
There's the law and then there'spolitics.
First, what is meant by therule of law?
In its raw essence, courts arebound by previous case decisions
, acts of Congress andprocedures.
The Administrative ProcedureAct dictates how a court must

(01:26):
address and resolve disputesinvolving agency rulemaking.
Here the Federal TradeCommission substantive
regulation to bannon-competition agreements in
employment.
Simply, the FTC cannot renderarbitrary and capricious rules.
It must have the authority tomake rules as directed by
Congress.
It must have the authority tomake rules as directed by

(01:46):
Congress.
The Texas court Ryan LLC v FTCsaid that the FTC did not have
this power, even though we allpresume the FTC protects against
unfair corporate behavior andnon-compete agreements squarely
fit into the FTC's jurisdiction.
Second, this is really apolitical issue to garner
election support.
In the left corner of the ringthere is a decision FTS Tree

(02:12):
Service v FTC by a Pennsylvaniafederal judge, a Biden appointee
that holds in favor of the FTCrule, and you can read the
decision in the show notes below.
In the right corner of thisheavyweight title bout is a
Trump appointee in a Texas caseabove Ryan LLC versus FTC.
The August 20, 2024 Texasdecision banned the enactment of

(02:35):
the FTC rule on non-competition.
The FTC has 60 days to file anotice of appeal from the August
20th decision.
As of this date of this podcastepisode.
The FTC has yet to file anotice of appeal from the August
20th decision.
As of this date of this podcastepisode.
The FTC has yet to file anotice of appeal in the court
docket.
I checked because I do.
This is rather a simpleprocedure and I do not expect
the FTC to wait very long tofile this notice.

(02:59):
Once filed, the appellateprocedure takes over at the
Fifth Circuit and the FTC mustcomply with the Fifth Circuit of
Court of Appeals rules.
I suspect the case will beexpedited given the political
leverage the FTC will have onvoters.
Regarding the ATS tree servicecase in Pennsylvania, the court
issued a scheduling order onAugust 22nd requiring ATS to

(03:22):
file a motion for summaryjudgment by September 20th and
the subsequent briefs filedthereafter.
Unfortunately, a decision willnot be rendered by this court
until after the Novemberpresidential election.
This means the FTC fight willbe held in the Fifth Court of
Appeals and the Democrats mustact fast if they want to push
this case along before theelection, must act fast if they

(03:44):
want to push this case alongbefore the election.
The FTC could also push for anexpedited review by the US
Supreme Court.
Pursuant to a federal statute,expedited appeals are rare, but
I believe the FTC rule warrantsimmediate constitutional review,
given the enormous economicimpact on employees and
executives.
Whether or not the rule becomeseffective on September 4th.

(04:04):
The economic impact onemployers is de minimis, as the
FTC indicated that the cost ofnotifying employees of the new
rule is roughly $27 per employee.
Employers have no grounds toargue the economics here, as
they benefited financially fordecades due to the non-compete
case law decisions in theirfavor, and I have participated

(04:25):
in many of those decisions inemployees clients who have been
burned by this issue.
It's just a matter of howpolitically important this issue
is to voters.
We have two politicalcandidates running neck and neck
here Harrison versus Trump andthe political machines if you
know what that means in thiscountry may force the courts to

(04:48):
address the very important issuebefore November.
If you are looking through thecorrect lens, president Biden
demanded the FTC issue, thenon-compete rule, to garner
favor among the nearly 160million workers in this country
in November.
There's an estimated 30 millionemployees who are covered by
non-compete agreements.
Nothing has changed regardingthis initiative now that Harris

(05:12):
has taken over the DNCnomination for president.
Presumptively, harris hasadopted and embraced the FTC
rule as she needs all the votersshe can muster in her
hyphenated election bid.
The FTC rule is still effective.
On September 4th, I poured overthe Texas and Pennsylvania court

(05:32):
decisions.
I have the followingconclusions.
Employees may still void theirnon-compete agreements because,
legally speaking, the FTC rulehas not been enjoined.
We have two federal districtcourts rendering opposite
decisions in two parts of thecountry rendering opposite
decisions in two parts of thecountry.
Under the Pennsylvania ATSdecision, the court refused to

(05:52):
issue a preliminary injunction,while the Texas court in the
Ryan case issued a national banon FTC rule, although it
previously stated that the casewas limited to the parties
before it.
I question whether or not theTexas court has the authority to

(06:12):
issue an order applicable tothird parties beyond those in a
case before the court.
In the decision there is nojustification for the national
coverage of the order, just thatthe judge said so.
Given the national urgency ofthis issue and the FTC rule
positively affects millions ofemployees nationwide, I cannot
give the Texas court order theweight the judge arbitrarily
assigns to it, especially inlight of the conflicting

(06:35):
decision from the federal judgein Pennsylvania.
This is not what our nationrequires right now.
I argue the FTC rule has notbeen banned and is effective on
September 4th, and employeesmust push their employers
against this issue individually.
The enforceability of the FTCrule is undecided.
The appellate courts andeventually the Supreme Court

(06:57):
must weigh in to this veryimportant issue.
I would be not surprised ifthis issue becomes a political
football akin to the abortiondebate in the current
presidential election cycle.
Employees literally can forcetheir employers into court and
cause state and federal courtsaround the country to decide
which court Texas orPennsylvania got it right as to
whether the FTC has the power tosubstantively regulate

(07:20):
non-compete agreements inemployment.
More importantly, the Texasdecision would be merely
persuasive legal authority toany court outside of the state
of Texas, meaning other courtsare not required to follow that
decision.
That is a lot of legal leveragefor employees and they must
challenge the Texas court orderin their local jurisdictions.

(07:42):
Likewise, even if the employerstook the offense and began just
suing employees leaving forcompetitors after September 4th,
there would be a flood of casesto hit the dockets around the
country.
Overall, it was going to be amess, or in other words a shit
show, and there is a lot of roomto negotiate and litigate over
regarding the applicability ofthe FTC ban on current and

(08:03):
future non-compete agreements.
I say employees and executivescan and must challenge their
employers in support of theenforcement of the FTC rule
banning non-compete agreementsafter September 4th.
The Texas court decision inRyan LLC versus FTC is simply
conclusory and holds.
The FTC cannot make substantiverules about quote unquote

(08:25):
competition, which is ironic.
And further, that the FTC rulewas arbitrary and capricious.
When you read the Pennsylvaniadecision, the opposite is true.
The Pennsylvania court got itright.
The Texas court did not.
There are quite literally twopolar opposite decisions.
Yet the Pennsylvania courtdecision is firmly grounded in

(08:46):
supportive case decisions andcongressional delegation of
authority to issue substantiverule that the non-compete
agreements are illegal restraintof trade on the American
workforce.
The battle over this issue hasjust begun and employees should
be mad as hell about theseone-sided default management
agreements, as I've said allalong, that dictate the

(09:06):
financial and income affairs ofmillions of employees across
this country.
The FTC rule is good foremployees and good for this
country, regardless of thepolitics.
Just ask Californians in SanJose and Santa Clara, also
called Silicon Valley, becausecompetition non-compete
agreements don't apply there and, well as you know, business is

(09:29):
good.
I hope you are informed aboutthis decision and what I've
brought to your attention.
It's beyond what the media hasprovided to you and I'll follow
up as things develop here.
But good luck and be well.