Another Federal Court Finds FTC Noncompete Rule Unenforceable

At a Glance

• In Properties of the Villages, Inc. v. Federal Trade Commission, U.S. District Court Judge Timothy Corrigan enjoined the FTC from implementing or enforcing the Noncompete Rule against the plaintiff, and was careful to note that he was granting an injunction against the FTC only for the plaintiff, and was not entering a nationwide stay of the Noncompete Rule.
• As such, all eyes remain on the Northern District of Texas, where the Ryan court has promised a final decision on or before August 30 as to whether it will issue a permanent injunction and a nationwide stay of the Noncompete Rule.

On August 15, 2024, another federal court weighed in on the question of whether the Federal Trade Commission (FTC) exceeded its authority in issuing its rule banning post-employment noncompetes (Noncompete Rule), which is scheduled to go into effect on September 4, 2024. In Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316 (M.D. Fla. Aug. 15, 2024), Judge Timothy Corrigan, a judge in the U.S. District Court for the Middle District of Florida appointed by Pres. George W. Bush, enjoined the FTC from implementing or enforcing the Noncompete Rule against the plaintiff until further order of the court. Judge Corrigan declined to issue a more general, nationwide injunction. 

In his decision, Judge Corrigan relied on the “major questions doctrine.” That doctrine provides that when an agency claims to have the power to issue a rule of extraordinary economic and political significance, it must point to “clear congressional authorization” for the power it claims. Judge Corrigan concluded that the FTC failed to establish congressional authorization for what it found to be a “hugely consequential expansion of regulatory authority.” The court noted that while Congress has granted the FTC broad authority to make rules and regulations to carry out the provisions of the FTC Act, that grant of authority “is not the behemoth that the [FTC] says it is [as] evidenced by the fact that the Commission has never tried substantive rulemaking of this magnitude and has never even brought non-compete enforcement actions until it announced some consent decrees the day before it announced its Notice of Proposed Rulemaking.” 

Judge Corrigan emphasized his conclusion by borrowing from U.S. Supreme Court Justice Barrett’s concurring opinion in Biden v. Nebraska, 600 U.S. 477 (2023). Judge Corrigan wrote:

[I]f a parent gives a babysitter a credit card and says “make sure the kids have fun while we’re out,” the parent might expect that the babysitter would take the kids out for ice cream, but would not expect the babysitter to take the kids on an overnight trip to Las Vegas. Likewise here: without clear congressional permission, the final rule, the FTC’s equivalent of a trip to Las Vegas, is unauthorized.

In Conclusion

Judge Corrigan was careful to note that he was granting an injunction against the FTC only for the named plaintiff in the action (Properties of the Villages, Inc.), and was not entering a generally nationwide stay of the Noncompete Rule. As such, all eyes remain on the Northern District of Texas, where the Ryan court has promised a final decision on or before August 30 as to whether it will issue a permanent injunction in favor of the plaintiffs in that case and perhaps a nationwide stay of the Noncompete Rule. 

In the meantime, employers are advised to consider thoughtfully their next steps, as detailed in our recent update.