Lawsuits Filed To Block FTC’s Non-Compete Ban | Seyfarth Shaw LLP
At least three lawsuits have now been filed against the FTC to block implementation of its new rule to ban non-competes.
The first suit was filed in Texas federal court (Northern District) the day that the rule was announced by a global tax preparation service.
Next, the US Chamber of Commerce and related business associations filed suit in federal court (Eastern District) in Texas the following day seeking a preliminary injunction and a stay of the effective date of the rule.
The Chamber identified the following key arguments against the rule:
- The FTC lacks authority to issue a rule in this context, and has acknowledged the limitations in the past.
- The Rule is a sweeping abuse of the FTC’s authority under Section 5 of the FTC Act, opening the door for the FTC to regulate virtually anything any three commissioners — now and in the future — wish to regulate.
- If statutorily authorized, then the Rule rests on an unconstitutional delegation of authority to the agency.
- The Rule is impermissibly retroactive.
- The Rule violates the Administrative Procedures Act.
- The Rule is not rationally connected to economic data.
- The Rule was arbitrarily chosen without duly considering alternatives.
The Court has set a briefing schedule to address forum of the dispute, summary judgment, and a preliminary injunction:
Chamber Plaintiffs have until May 10 “to supplement their motion with additional briefing and attachments pertinent to summary judgment, including any ‘parts of [the administrative record] cited by’ plaintiffs in support of judgment in their favor.”
The FTC has until May 31 “to file briefing on the matters of plaintiffs’ request for preliminary relief and summary judgment in favor of either party.”
Chamber Plaintiffs have until June 12 to respond to that filing.
The FTC has June 19 to file any reply in support of summary judgment.
“The court will set a hearing on preliminary relief and summary judgment, and if necessary a consolidated bench trial, on a date close to completion of that briefing.”
Lastly, a small business filed suit in Pennsylvania federal court (Eastern District) on Thursday seeking to upset the FTC’s rule. The case was assigned to a Biden appointee.
It appears that we may have a ruling in June or July in the Chamber of Commerce case. We will continue to monitor these cases for significant developments.
We could potentially see a circuit split setting the issue up for US Supreme Court review.
