To date, three lawsuits have been filed challenging the legality of the FTC’s Final Rule banning non-competes. The initial two cases were filed in Texas federal court, which is widely viewed as a more hospitable forum for attacks on the Rule. The third case was filed in Pennsylvania federal court, possibly for the strategic purpose of creating a circuit split to enhance appellate options.
The first, Ryan, LLC v. Federal Trade Commission, was filed within hours of the April 23 vote approving the Rule for publication in the Federal Register. According to its pleadings, the plaintiff, Ryan, LLC, is a global tax services firm that uses non-competes in its shareholder agreements and with some employees “who have access to particularly sensitive business information.” The Complaint seeks a judgment vacating the Rule, declaring that the FTC does not have the authority to issue the Rule, declaring the Rule is unconstitutional, and declaring that the FTC is unconstitutionally structured. The Court’s docket reflects a “Court Request for Recusal” and no attorney has entered an appearance on behalf of the FTC—indicating the case may not move as quickly unless or until a request for an injunction of the Rule is made by Ryan, LLC. The full case citation is Ryan, LLC v. Federal Trade Commission, 3:24-cv-986, United States District Court for the Northern District of Texas, filed April 23, 2024.
The second case was filed the day following the FTC’s vote and is led by the U.S. Chamber of Commerce. Unlike the Ryan case, the Chamber has moved for a preliminary injunction to prohibit the FTC from enforcing the Rule and postponing the Rule’s effective date (120 days from its forthcoming publication in the Federal Register). The Court has determined that the case “presents only legal disputes about agency action” and no discovery is required. As a result, the Court consolidated the trial on the merits of the Chamber’s claims with the injunction hearing, which will occur on a to-be-determined date shortly after the completion of the parties’ briefing on June 19, 2024. District Judge J. Campbell Barker specifically noted that the scheduling order will allow sufficient time to resolve and appeal the issues before the Rule’s effective date. The full case citation is Chamber of Commerce for the United States of America et al. v. Federal Trade Commission et al., 6:24-cv-00148, United States District Court for the Eastern District of Texas, filed April 24, 2024.
The third case was filed a day later (April 25) by a smaller company, ATS Tree Services, LLC, which only employs 12 people, and seeks similar injunctive relief. Unlike the Texas cases, the ATS lawsuit places a greater emphasis on the necessity of non-competes to safeguard specialized training and names all five FTC commissioners as defendants. No attorney has yet entered an appearance on behalf of the FTC or its commissioners nor has the Court entered a docket control order—meaning it’s likely this case will not move as quickly as the U.S. Chamber lawsuit. The full case citation is ATS Tree Services, LLC v. Federal Trade Commission, et al., 2:24-cv-1743, United States District Court for the Easter District of Pennsylvania, filed April 25, 2024.
While other lawsuits against the FTC and its commissioners trickle in, it’s likely the U.S. Chamber’s lawsuit will take the lead. Your Polsinelli Restrictive Covenant and Trade Secret Group will continue to monitor these cases and will keep you updated with any major litigation developments.
