A federal court in Texas has issued a decision holding that the Federal Trade Commission’s (“FTC”) Rule banning the use of employee non-compete agreements is unlawful. See Ryan, LLC v. Federal Trade Commission (U.S. Dist. ND Texas 2024). The court held that the FTC’s Rule was invalid nationwide and was not limited to the parties in the case. On specific legal grounds, the court held that the FTC’s Rule violated the Administrative Procedures Act in two aspects: the Rule was deemed arbitrary and capricious, and the FTC exceeded the authority granted to it by the Federal Trade Commission Act when the FTC issued its Rule banning non-compete agreements. The court’s decision was not unexpected since, earlier, the court had stated similar views in ruling on a Motion To Stay enforcement of a preliminary injunction. See here.

As discussed below, for FTC Enforcement Defense Law Firms — like Revision Legal — the Ryan, LLC decision is extremely valuable as a legal pathway to defending against FTC enforcement actions and investigations.

The Ryan, LLC court’s ruling is a direct result of a recent decision by the U.S. Supreme Court in Loper Bright Enterprises v. Ramondo. Prior to Loper Bright, federal courts were required to give great deference to federal agencies — like the FTC — when those agencies interpreted their own enabling statutes. After Loper Bright, that level of deference is no longer required. Now, federal courts will make their own interpretations of what enabling statutes allow.

In Ryan, LLC., the FTC’s Rule banning non-compete agreements was challenged, in part, on the grounds that the FTC did not have the statutory authority to issue the Rule. The FTC argued that it DID have such authority based on its own interpretation of its enabling legislation. Under the pre-Loper Bright standard, the Texas federal court would likely have accepted that interpretation under the “great deference” standard. After Loper Bright changed the deference standard, the Texas court ruled otherwise. Specifically, the FTC interpreted the Federal Trade Commission Act to give it substantive rule-making authority with respect to “unfair methods of competition.” However, the court looked to the specific statutory section authorizing substantive rule-making — Section 6(g) codified at 15 U.S.C. 57a — and did not see the words “unfair methods of competition.” Rather, the language allows the FTC to promulgate “interpretive rules and general statements of policy with respect to unfair or deceptive acts or practices in or affecting commerce.” Since the words “unfair methods of competition” are not included, then the FTC has no rule-making authority with respect to “unfair methods of competition.” For that and other reasons, the court held that the FTC’s Rule banning non-compete agreements was invalid.

Why this matters for FTC enforcement legal defense

As can be seen, the Ryan, LLC court’s decision is extremely nuanced. This is a level of nuance that FTC enforcement attorneys would quickly reject. However, going forward, the FTC — and other federal administrative agencies — will not be able to reject these kinds of nuanced text-based arguments. The defense focus now shifts to the federal judge involved in the case. Importantly, federal judges are willing to engage with such nuanced arguments and have no built-in bureaucratic bias toward rejecting such nuanced arguments. In short, it will now be easier to defend against regulatory agency enforcement actions and efforts. This is true even if the Ryan, LLC decision is overturned on appeal.

Contact the FTC Enforcement Defense Attorneys At Revision Legal

For more information, contact the experienced FTC Enforcement Defense Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.