The Supreme Court virtually doomed the FTC’s attempt to ban non-competition agreements in its June 28, 2024, decision in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce. In these cases, the Court overruled its own landmark decision in Chevron v. Natural Resources Defense Council (1984) which held that courts should defer to federal agencies when laws passed by Congress do not clearly answer a question arising under a statute administered by the agency.
Criticism and the Overturning of the Chevron Doctrine
The Chevron Doctrine has been subject to substantial criticism by legal scholars as an unconstitutional delegation of the authority reserved to Congress to legislate. In the employment law area, in particular, overreaching by agencies such as the Equal Employment Opportunity Commission (EEOC), the Department of Labor, and Immigration and Customs Enforcement, among others, has been criticized as an example of legislating by administrative fiat.
In the majority opinion authored by Chief Justice Roberts, the court called the Chevron Doctrine “fundamentally misguided.” The Court reasoned that the Chevron Doctrine conflicts with the language of the Administrative Procedure Act (the law that establishes procedures that federal agencies must follow in rulemaking), which directs courts to “decide legal questions by applying their own judgment” and that it is courts, not the agency, that decides “whether the law means what the agency says.”
Skidmore Deference: What Courts Can Still Consider
Notably, the decision does not prohibit courts from looking to the expertise of the relevant agencies for assistance in interpreting federal statutes (a doctrine known as Skidmore Deference), it merely states that courts are no longer required to defer to those agency interpretations in deciding how the law should be applied.
The Dissenting Opinion: Potential Legal Shockwaves
The dissent, authored by Justice Kagan and joined by Justices Sotomayor and Jackson, cautioned that the decision “will cause a massive shock to the legal system.” Whether the impact will be “massive” remains to be seen. In cases where the agency’s interpretation aligns with a judge’s interpretation, the same result would be realized as if Chevron was still valid precedent. Moreover, under the Skidmore Doctrine, agencies can still inform and influence the court’s decision based on the agency’s expertise in administering the law. It is only when agencies overstep their authority that a different result will occur.
Impact on the FTC’s Ban on Non-Competes
On April 23, 2024, the FTC issued a Final Rule banning most, but not all, non-compete agreements. Set to take effect on September 4, 2024, the rule would prohibit any contract that prohibits, penalizes, or functions to prevent a worker, including independent contractors, from seeking or accepting work at another employer after leaving a business. For reasons that were never made clear, the rule made exceptions for banks, federal credit unions, common carriers (including airlines), and nonprofits. It also grandfathered in current non-compete agreements with certain senior executives and it allowed for non-competes against individuals who sell their businesses.
The problem with the FTC Rule is that there is no mention of non-compete restrictions in the Federal Trade Commission Act (FCTA), 15 U.S.C. §§ 41-58, or any other federal statute administered by the FTC. The FTCA broadly bans “unfair methods of competition in or affecting commerce,” but nowhere does it offer a definition of “unfair methods of competition.”
Legal Challenges Against the FTC Rule and an Anticipated Court Decision
The FTC Rule has been subject to several challenges, most of which were consolidated into a single case filed in US District Court in Texas, Ryan, Inc. v. FTC. The plaintiffs in these cases attacked the rule on several bases, one of which was the argument that under the FTCA, the FTC did not have the constitutional authority to determine whether non-compete agreements constituted an unfair method of competition. The plaintiffs moved the Court for an injunction against enforcement of the FTC Rule.
For reasons that are now made clear, Judge Ada Brown, anticipating that Loper and Raimondo would be decided on or before June 28, declined to hear oral argument on the plaintiffs’ motion to for injunctive relief, announcing that she would have a decision on or before July 3. Read more about that decision here.
