By Greg Care
In this blog article, I’ll be discussing how the recent election cycle is likely to affect the FTC’s rule prohibiting nearly all non-competes. Spoiler alert: things look bleak for the rule’s supporters.
In the early morning hours after Election Day 2024, the Associated Press called the Presidential election in favor of Donald Trump. As of this writing, the AP has also determined that the Republican Party will now gain control of the U.S. Senate. However, it is still too soon to tell if Republicans will retain control of the House.
So, what does this mean for the fate of the FTC’s non-compete rule?
It is no secret that President-Elect Trump and Republican lawmakers are widely opposed to a variety of regulations that they consider to be anti-business. The FTC’s non-compete rule is almost certainly viewed in that light. Just a week before the election, the U.S. House Committee on Oversight and Accountability released a Staff Report denouncing the FTC’s rule and it has been reported that Trump and his campaign have utilized non-competes extensively. Further, the owner of Ryan, LLC, the tax services company challenging the non-compete rule in court, is reported to be a tax advisor to Trump. So, with Trump residing in the White House and more Republican control in Congress, it is highly likely that the non-compete rule is vulnerable in several ways.
First, it is possible that, under new leadership, the FTC will drop its legal fight to save the non-compete rule from federal court decisions declaring it invalid.
As we’ve discussed in past blogs, the ruling in Ryan LLC v. Federal Trade Commission, No. 3:24-CV-00986-E (N.D. Tex.) imposed a final judgment prohibiting the enforcement of the rule on a nationwide basis, and the decision in Properties of the Villages, Inc. v. Federal Trade Commission, No. 5:24-cv-00316 (M.D. Fla.) found that the rule could not be enforced against the plaintiff in that case. The FTC appealed both decisions to the Fifth and Eleventh Circuit Courts of Appeal, respectively.
At their current pace, it is unlikely that these appeals will be resolved before Trump takes office. On the heels of the FTC filing its opening brief in Properties of the Villages, Inc., the plaintiff/appellee asked the Eleventh Circuit to pause that appeal, pending the outcome of the appeal in Ryan LLC, which the FTC is opposing. So far, there is no briefing schedule, let alone an oral argument on the calendar, in the Ryan LLC case.
This timing matters because the lead champion of the non-compete rule—current FTC Chair, Lina Khan—is almost certainly going to be quickly replaced by Trump and Senate Republicans. Khan’s term as Chair technically expired on September 25, though she is permitted to serve until a successor is appointed. Once she is replaced, it is a good bet that the new Chair would cause the Department of Justice to withdraw the appeals in the Fifth and Eleventh Circuits and drop the other case in a Pennsylvania federal court. This would effectively leave intact the Texas federal court decision imposing a nationwide ban on enforcing the non-compete rule.
Second, it is conceivable that, regardless of what becomes of the court battles, the FTC could seek to amend or repeal the non-compete rule.
Should Chair Khan be replaced, the new Chair (who also serves as one of the five FTC Commissioners) would shift the balance in voting on this issue. Recall that the non-compete rule was passed on a 3-2 vote by the Commissioners, with Commissioners Melissa Holyoak and Andrew N. Ferguson voting against the rule. A new Chair/Commissioner opposed to the rule would provide enough votes for an amendment or repeal of the non-compete rule. Of note, this action would need to follow the sometimes lengthy notice-and-comment process, so it would take considerable time for this approach to have any effect. The possibility of an amendment of the rule, as opposed to outright repeal, is not out of the question since Commissioner Holyoak’s oral statement in response to the rule’s passage noted that her “dissent today should not be interpreted to mean that I endorse all noncompete agreements. To the contrary, I would support the Commission’s prosecution of anti-competitive noncompete agreements, where the facts and law support such enforcement.” However, this suggests she might be more inclined for the FTC to engage in administrative prosecutions rather than rulemaking. Only time will tell.
Third, the non-compete rule might be subject to nullification by Congress.
One method of Congressional attack was perhaps already tried and has failed. Under the Congressional Review Act (CRA), the President and Congress can nullify a regulation if a joint resolution of disapproval is passed and signed by the President within a specific and limited timeframe. Of note, Trump used the CRA to erase at least 15 Obama Administration regulations at the start of his first term as President, so this is a tool well-known to him. Representative Gary Palmer of Alabama introduced H.J. Resolution 186 in July 2024, but it has seen no movement. Presumably, the time for action on that has passed and the non-compete rule was issued too far in advance of the end of the legislative calendar to be subject to the “look back” exception in the CRA. However, some argue that there is more flexibility in the timing than that. If a nullification happens via the CRA, it would almost certainly prevent the FTC from ever attempting a similar regulation again in the future because of the CRA’s wording.
Separately, if so motivated, a Congress controlled entirely by Republicans opposed to the non-compete rule could also pass legislation restricting its delegation of rule-making authority to the FTC.
In closing, it appears that the embattled non-compete rule is not likely to survive these various attacks. While Congress can theoretically act, this election shows that it is unlikely to go anywhere. And so it once again falls to the states to act and our focus in addressing clients’ non-compete issues will remain with state-level laws and court decisions.
If you have questions regarding non-competes in your situation, please contact us today to see if we can assist with your particular circumstances.
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