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.
The Post-Loper Bright Landscape for Federal Agency Rulemaking
The implications of Loper Bright extend well beyond non-compete agreements. By eliminating the Chevron deference doctrine — under which courts gave substantial deference to agency interpretations of ambiguous statutory language — the Supreme Court has fundamentally changed the balance of power between federal courts and regulatory agencies. Courts will now interpret the scope of agency authority independently, without giving the benefit of the doubt to the agency.
This shift is particularly significant in the employment and labor law context because many of the most consequential regulatory changes over the past several decades have come through agency rulemaking rather than legislation. The Department of Labor’s overtime salary threshold regulations, the NLRB’s joint employer rules, and OSHA’s workplace safety standards are all subject to challenge under Loper Bright. Businesses that have structured their employment practices around regulatory guidance may need to revisit those practices if the underlying regulations are successfully challenged on the grounds that the agency exceeded its statutory authority.
Current State of Non-Compete Enforceability by State
In practical terms, the Ryan, LLC decision means that non-compete agreements are governed entirely by state law — at least for the foreseeable future. The patchwork of state law in this area requires employers to analyze enforceability on a state-by-state basis:
- Outright bans — California, Minnesota, North Dakota, and Oklahoma prohibit virtually all employee non-compete agreements
- Salary thresholds — Illinois, Washington, Virginia, and Maryland prohibit non-competes for employees below specified salary thresholds
- Time and geographic limits — most states that permit non-competes limit their duration (typically one to two years) and require a reasonable geographic scope tied to the employee’s actual area of work
- Garden-leave provisions — some employment arrangements require the employer to pay the employee during the non-compete period; while not widely required by U.S. law, such provisions can strengthen enforceability and reduce litigation
- Judicial blue-penciling — courts in many states will reform an overly broad non-compete to make it enforceable; but some courts apply an all-or-nothing rule
Alternative Protections for Employers
Employers concerned about the uncertain enforceability of traditional non-compete agreements should consider strengthening their use of alternative protective measures. The Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836, creates a federal civil cause of action for trade secret misappropriation. Unlike non-competes, trade secret claims require the employer to show that the employee misappropriated actual confidential information — but the remedies, including ex parte seizure of misappropriated information, can be highly effective.
Non-solicitation agreements — which prohibit a departing employee from soliciting the employer’s customers or other employees for a defined period — are permitted in all states that allow non-competes and are often more defensible because they protect specific, identifiable business relationships rather than broadly restraining competition. Confidentiality agreements that clearly identify the specific categories of confidential information the employee has access to provide a solid foundation for misappropriation claims if confidential information is later used improperly.
Training repayment agreements (sometimes called clawback provisions) are another tool: if an employer invests in specialized training for an employee, the agreement requires the employee to repay a portion of the training cost if the employee leaves within a specified period. These are generally permissible in most states as long as the repayment obligation is proportional to the investment and does not impose an undue financial burden on low-wage workers.
Contact the Executive Employment Contract Negotiator Attorneys at Revision Legal
For more information, contact the experienced Executive Employment Contract Negotiator Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.
