On June 28, 2024, the U.S. Supreme Court handed down its decision in Loper Bright Enterprises v. Ramondo. In that decision, the Supreme Court overturned what is called the Chevron doctrine, which required federal courts to give great deference to a federal regulatory agency when that agency interprets an ambiguous provision in a statute over which the agency has regulatory authority. Going forward, federal courts will give only minimal deference to an agency’s interpretation. The difference may sound unimportant, but Loper Bright is likely to significantly shift the regulatory landscape at the federal level. Congressional statutes are often full of ambiguity and “silences.” These will now be interpreted by federal courts based on judicial principles and doctrines. Loper Bright may also lead to changes in the way Congress drafts its statutes. Arguments have been made that vagueness and ambiguity have been intentionally inserted into Congressional statutes over the last 40+ years to give regulatory agencies as much latitude as possible.
Loper Bright may already be having an impact on employment contracts, including executive-level employment contracts. As we discussed in another article on this blog, the Federal Trade Commission (“FTC”) recently issued a Final Rule banning non-compete agreements (“NCA”) nationwide. The FTC’s Final Rule banned the enforcement of existing NCAs for all workers other than for senior executives. Current NCAs for executive employees could still be enforced. However, the Final Rule banned employers from entering into or attempting to enforce any new NCAs with senior executives after the effective date of the Final Rule.
The FTC is a federal regulatory agency tasked with regulating unfair methods of competition, including enforcing various statutes related to fraudulent business practices, unfair and deceptive advertising, and more. The FTC banned NCAs through rule-making by claiming that NCAs are a type of unfair business practice.
However, citing Loper Bright and other cases, one federal court has already held that the FTC exceeded its authority in promulgating its Final Rule banning NCAs. See Ryan LLC v. Federal Trade Commission (U.S. Dist. ND Texas 2024). The court held that the FTC might have authority to regulate unfair trade practices but did not have “substantively rulemaking power.” Not only do federal regulatory agencies interpret the substantive aspects of their enabling and other statutes, but they also interpret the procedural aspects of those states. The FTC has long interpreted the Federal Trade Commission Act to give it rulemaking powers. However, in the Ryan LLC case, the federal district court disagreed. Since the FTC did not have the power to issue its Final Rule banning NCAs, the court stated that an injunction would ban enforcement of the FTC’s Final Rule.
For employers, employees, and senior-level executives, this means that NCA provisions in employment contracts are now enforceable again. At the very least, the question of the enforceability of NCA provisions is an “open question.” As such, employers will likely ask that NCAs be signed, and careful attention must be paid to what is contained in those agreements and provisions.
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