Big Law Lines Up to Battle FTC Over Ban on Noncompete Clauses

“There is a presumption that compliance with a regulation later held to be invalid results in irreparable harm to those subject to the regulation,” the Society for Human Resource Management said in a court filing.

A Texas company’s challenge to Federal Trade Commission regulations barring enforcement of employment noncompete clauses is drawing wide attention, with some amicus organizations enlisting the services of Big Law.

The case, Ryan v. Federal Trade Commission, could determine the future of the Biden administration’s attempt to end nearly all noncompete clauses.

On April 23, the FTC announced it adopted a rule that makes most existing noncompetes unenforceable.

But Ryan LLC, represented by Gibson, Dunn & Crutcher, claims the FTC lacks authority to impose such a rule.

The Ryan suit is one of two pending nationwide seeking to overturn the FTC regulation on noncompetes.

The other is ATS Tree Services v. Federal Trade Commission, with the plaintiff represented by the Pacific Legal Foundation. It was filed April 25 in the Eastern District of Pennsylvania.

A third suit by the U.S. Chamber of Commerce, also challenging the regulation, has been consolidated with the Ryan case.

U.S. District Judge Ada Brown. Credit: Diego M. Radzinschi/ALM

The Texas case has seen a host of interested parties line up to express their views, with Seyfarth Shaw weighing in on behalf of the Society of Human Resource Management, while the Partnership for New York City has enlisted Davis Polk & Wardwell to submit its amicus brief.

Epstein Becker & Green is representing a large group of amici, including the National Retail Federation, the International Franchise Association, the American Hotel and Lodging Association and the Restaurant Law Center. McDermott Will & Emery is representing the amicus National Association of Manufacturers, while the Securities Industry and Financial Market Association, the Futures Industry Association, the Managed Funds Association and the American Investment Council have retained Mayer Brown.

The case is assigned to U.S. District Judge Ada Brown, who was appointed by President Donald Trump in 2019. Brown is a former assistant district attorney and previously served as a trial judge in criminal court in Dallas County and on the Fifth Court of Appeals of Texas. After she was nominated for the federal bench, Brown was unanimously rated well-qualified by the American Bar Association.

Michael Wexler of Seyfarth Shaw, who represents SHRM, said that of the Texas and Pennsylvania cases, the Texas one seems to be getting more attention.

“The Texas case seems to be the bigger show. In the Texas case you seem to have a lot of the bigger players there. But they’re both national in significance because they are both asking for the same thing: the FTC rule to be voided because there wasn’t proper authority,” Wexler said.

The focus of the case right now is whether to grant Ryan’s request for a stay and injunction against enforcement of the new regulation.

SHRM has joined that request, asserting in a court filing that the human resource professionals who are its members are uniquely impacted by the FTC rule.

That rule will allegedly “be disruptive to SHRM’s members if allowed to take effect on September 4, 2024, without a final adjudication of its applicability. There is a presumption that compliance with a regulation later held to be invalid results in irreparable harm to those subject to the regulation,” SHRM said in court papers.

“If the injunction does not issue, then what would happen is on Sept. 4, businesses would have to void noncompetes. Businesses can’t use noncompetes anymore. A whole host of things would happen and then the case winds its way through the court system and the court says, ‘Oh, yeah, the FTC didn’t have authority, it’s arbitrary and capricious, it’s too far reaching.’ In the interim, all kinds of things happen. So as a practical matter, it makes perfect sense to issue an injunction,” Wexler said.

Michael Wexler of Seyfarth Shaw. Courtesy photo

Whatever happens, it’s a safe bet that the Texas case will be appealed, and will end up at the U.S. Supreme Court, said Wexler.

And there are two reasons for that, Wexler said.

“The Supreme Court will get this case most likely one, under the major questions doctrine, [since it concerns a challenge of] authority of the FTC. And second is the potential that you have a split of the circuits. One circuit could say, ‘Yeah, this is OK.’ The other circuit could say, ‘No, this isn’t OK,’” Wexler said. “So [there are] two grounds for the Supreme Court ultimately to get this issue in front of them.”