Having achieved a milestone in obtaining a limited preliminary injunction halting the application of the FTC ban on non-competes effective September 4, 2024 as to the named plaintiffs and plaintiff-intervenors in its Texas lawsuit, the U.S. Chamber of Commerce et al. and Ryan, LLC moved today, July 10, to expand the injunction to apply more broadly. Specifically, plaintiffs moved Chief Judge Ada Brown to reconsider her limited prior injunction ruling, arguing that enjoining the FTC's unlawful regulation or staying its effective date under the Administrative Procedure Act need not be "party restricted" and that the Fifth Circuit and U.S. Supreme Court have repeatedly stayed agency rules without party limitation. Alternatively, plaintiffs argue that at minimum the Court should expand the injunction to apply to plaintiff-intervenors' association members, citing Warth v. Seldin, 422 U.S. 490 (1975) for the proposition that any remedy should inure to the benefit of the association members actually injured.
As if to warn the Court of an impending storm and to give the Court an opportunity to stave off an avalanche of additional intervenors hoping to benefit from the injunction already issued, the motion notes that association members (and others) will have uncertainty and incur substantial compliance costs if the current injunction is not expanded even though the Court will rule on the merits by August 30, 2024, just a few short days before the FTC ban's September 4 effective date. The motion notes that district courts are authorized to set aside agency action and postpone effective dates such that an agency rule may not be applied to anyone, despite the FTC's opposition in the initial pleadings that relief should be granted only to named plaintiffs (which Chief Judge Brown apparently agreed with, given her ruling last week limiting the injunction to the named plaintiffs).
In a bevy of citations, the plaintiffs note that the Fifth Circuit, and other courts, typically set aside unlawful agency action on a nationwide basis rather than assessing individual equities on a party by party basis. Of course, that appears to be a practical approach in that Chief Judge Brown already ruled that the FTC violated the APA in promulgating the non-compete ban in the first place, and requiring each business wishing to benefit from the issued injunction to file its own action is neither cost-effective nor practical. Rule 24(b) of the Federal Rules of Civil Procedure provides that "[o]n timely motion, the court may permit anyone to intervene who . . . has a claim or defense that shares with the main action a common question of law or fact." Intervention under Rule 24 would allow intervenors the ability to benefit from the Court's prior injunction because "one who intervenes in a suit in equity thereby becomes a party to the suit, and is bound by all prior orders and adjudications of fact and law as though he had been a party from the commencement of the suit." Galbreath v. Metropolitan Trust Co., 134 F.2d 569, 570 (10th Cir. 1943). There could literally be thousands of intervenors wishing for some certainty in the short term as this national issue winds its way through the judicial process potentially for years—particularly as the FTC ban requires businesses to proactively inform the vast majority of their employees that their non-competes are void and unenforceable by September 4. In other words, absent prompt clarity as to the FTC's ability to enforce the ban against the thousands of businesses who are currently not impacted by the injunction, many businesses will likely be unwilling to take a "wait and see" approach and will be forced to disavow and abandon otherwise compliant non-competes, despite the very real possibility that the FTC's ban will be deemed invalid by a higher court.
Leaving nothing to chance, the plaintiff-intervenors also ask the Court at minimum to expand the current injunction to association members in light of a long history of courts extending preliminary relief and other remedies to association members through associational standing. The plaintiffs argue that they are committed to protecting their members and that it is their members who are the actual parties who will suffer concrete financial and other harms as a result of the FTC ban. The plaintiffs further note that they did not previously argue associational standing because no one challenged it, but that they had "alleged associational standing in their complaint and supported it with evidence necessary to obtain preliminary relief."
The FTC will likely be hard pressed to oppose this natural, necessary and commonplace expansion of the current injunction. Because the Court already ruled that the FTC exceeded its authority, one cannot imagine that the FTC would take the untenable position that it should be allowed to enforce its ban against any business that has not filed a lawsuit or that the Court's ruling should not be equally applied to all businesses affected by the ban when the rulemaking authority of the FTC has already been found to be improper. Would the FTC actually encourage a record number of intervenors to benefit from the Texas Court's preliminary ruling? One would hope not, but we will know for sure when the FTC files its opposition to plaintiffs' motion.
In the interim, employers who seek to enforce non-compete covenants with their employees should give serious consideration as to how they can benefit from the current injunction, how they would react if this motion to expand is not granted, how long it would take to comply with the ban by the September 4, 2024 effective date, whether they can rely on the good faith exception to the rule to avoid informing employees that their non-competes are void, and whether they can rely on other options to protect their critical business assets. Later today, the plaintiffs also filed a motion to expedite consideration of its motion to reconsider/expand the injunction, proposing that the FTC files its opposition by July 12, the plaintiffs file a reply by July 15, and the Court issue a ruling by July 17, 2024. While it is not clear when the Court will rule on either motion, the Court's practice thus far in this case suggests that the Court will likely move quickly on the plaintiffs' motions.
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