A reconstituted Federal Trade Commission (Commission) has asked the Fifth Circuit Court of Appeals to grant it a 60-day continuance to consider whether to drop the defense of its rule banning noncompetes.
As previously reported, in April 2024, the FTC by a three-to-two vote of the Commissioners adopted a rule scheduled to become effective in Sept. 2024 that would ban most noncompete agreements on a nationwide basis.
Prior to it becoming effective, U.S. District Court Judge Ada Brown in the Northern District of Texas granted summary judgment in favor of plaintiffs who had challenged the rule and issued a nationwide injunction barring its taking effect. (Around the same time, in another case, the U.S. District Court for the Middle District of Florida issued a preliminary injunction stopping its application as to the named plaintiff).
In the Texas case, Judge Brown concluded that the FTC lacked statutory authority to issue the rule and the adoption of the rule was arbitrary and capricious and therefore invalid under the Administrative Procedure Act. In the Florida case, the court concluded that the promulgation of the rule involved a “major question” and that there was not the requisite clear and specific authorization from Congress to support the rule.
Last October, the FTC appealed to the Fifth Circuit. (The Florida case has been held in abeyance.) In January, the FTC filed its opening brief.
Following President Trump’s inauguration, Chairperson Lina Khan, a Democratic Commissioner, resigned and President Trump then fired the two remaining Democratic Commissioners. (Those firings are now being challenged in U.S. District Court for the D.C. District in a case captioned Slaughter v. Trump on the grounds that President Trump lacked the authority under the FTC Act to fire them without cause.[1])
This left only the two Republican Commissioners, Andrew Ferguson and Melissa Holyoke, both of whom opposed the rule when it was adopted. (Commissioner Ferguson wrote a stinging dissent.) Following Commissioner Khan’s resignation, Ferguson became Chairperson. In April, Mark Meador, a Republican appointee, was confirmed by the Senate and became the third member of the Commission.
In March, prior to the confirmation of Commissioner Meador and while there were only two Commissioners, the Commission requested that the case be held in abeyance for 120 days while the Commissioners decided whether to drop the appeal, especially in light of Commissioner Ferguson’s public statements that the Commission should reconsider its defense of the rule. The request was granted.
The most recent request for the additional 60 days is based on the fact that the composition of the Commission has again changed with Commissioner Meador’s appointment and that, given “the press of Commission business,” additional time is again needed for the Commission to decide whether to drop the appeal.
It is expected that the request will be granted and it continues to be expected that the Commission will end its defense of the rule.
While Commissioner Ferguson has remained strongly opposed to the promulgation of the rule as being beyond the scope of the Commission’s authority, he has made it clear that this opposition does not reflect blanket support for noncompete agreements. To the contrary, he has stated that noncompete agreements can violate the law in specific cases, but their legality should be considered on a case-by-case basis.
[1] As previously reported, this case brings center stage the question whether the Supreme Court’s 1935 decision in Humphrey’s Executor v. United States, which upheld the provisions of the Federal Trade Commission Act that provide that the President can only remove Commissioners for cause, should be overturned or narrowed.
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