Business world battles FTC over non-competes and antitrust courts

The Federal Trade Commission is flexing its muscles and now companies are fighting back.

A federal judge in Texas on Tuesday blocked a controversial FTC ban on non-compete agreements that was set to take effect in early September after the U.S. Chamber of Commerce and tax services provider Ryan LLC fought the rule.

“This decision is a significant victory in the Chamber of Commerce’s fight against government micro-control of business decisions,” said Suzanne Clark, executive director of the Chamber of Commerce, in a statement.

The development came a day after supermarket giant Kroger (KR) filed a motion in federal court in Ohio accusing the FTC of violating the U.S. Constitution by relying on internal administrative law judges to block a merger of Kroger with rival supermarket chain Albertson's (ACI).

“[W]”We urge the court to halt the FTC's internal tribunal proceedings, which amount to a violation of law,” Rodney McMullen, Kroger's chairman and CEO, said in a statement.

The new challenges to the scope of the FTC's power follow a period of aggressive enforcement actions by the agency under Chair Lina Khan as it seeks to curb what the Biden administration sees as anti-competitive practices in a range of industries, from health care to grocery to technology.

Recent Supreme Court decisions in June have made it easier for companies to file these lawsuits.

First, in a case titled SEC v. Jarkesy, the Supreme Court stripped the Securities and Exchange Commission of the authority to use internal arbitration panels to impose fines for civil violations and simultaneously denied a defendant a jury trial.

Kroger cited that decision when it filed its motion against the FTC on Monday.

The Supreme Court in a separate case entitled Loper Bright Enterprises v. Raimondo It also repealed a 40-year-old legal doctrine known as the Chevron deference, which gave federal agencies latitude in interpreting laws and thereby limited regulators' power to intervene in many industries.

When Dallas U.S. District Judge Ada Brown announced her decision blocking the FTC's noncompete agreement, she cited the Loper-Bright decision, noted Gregory Brown, a partner in the transactional litigation practice at the law firm Hill Ward Henderson.

“It is likely that the [Texas] Even without Loper Bright, the court would have reached the same conclusion regarding the FTC's rulemaking,” Brown said, “but the FTC and other law enforcement agencies must proceed cautiously in this new environment.”

FTC Tribunals

The proposed merger of Kroger and Albertsons faces two separate FTC merger lawsuits: one in a federal district court in the state of Oregon and another in the FTC's internal administrative court.

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The FTC is asking the federal court to block the deal while internal judges review the transaction.

But Kroger argues in its new motion that the agency does not have the authority to file a merger lawsuit because its judges cannot be removed by the President of the United States.

It also states that the private rights of a company to enter into contracts with another private party can only be challenged by the independent judiciary.

The FTC is “clearly violating the Constitution,” Kroger’s motion states.

CEO McMullen said in his statement: “We are prepared to defend this merger in the upcoming trial in federal court – the appropriate place to litigate this case.”

Non-competition clause

The companies are also fighting the FTC's decision to declare almost all non-compete agreements illegal. This would be a major change in US law that could lead to a restructuring of the balance of power between companies and employees.

The ban, which was set to take effect in early September, has been challenged in several lawsuits filed by companies in Texas, Florida and Pennsylvania.

On Tuesday, Dallas U.S. District Judge Ada Brown sided with the U.S. Chamber of Commerce and tax consulting firm Ryan LLC that the commission did not have the authority to issue the ban.

The decision may allow the dispute to be reviewed by the U.S. Supreme Court.

The FTC rule defined non-compete agreements as agreements that expressly prohibit employees from seeking or accepting other employment or starting a business after Your employment relationship ends.

The rule was written to apply to U.S. workers and independent contractors in all industries, from doctors and engineers to fast-food workers and salespeople, and with few exceptions, it was retroactive.

An exception was made for non-compete agreements that had already been signed with company directors, presidents, and senior executives with “policy-making authority.” This rule exempted these employees from the rule if their compensation exceeded $151,164 per year.

When the FTC issued the rule, it said it was necessary to “protect workers' fundamental freedom to change jobs, encourage innovation, and support the creation of new businesses.”

But the Texas judge said, “The FTC does not have the legal authority to announce the non-compete agreement, and the ban is arbitrary and capricious. Therefore, the FTC's announcement of the ban is an unlawful regulatory action.”

Clark, the Chamber of Commerce's CEO, said in a statement that “a sweeping ban on non-compete agreements by the FTC would have been an unlawful expansion of power that would have put American workers, businesses and our economy at a competitive disadvantage.”

The FTC said it was considering an appeal and noted that the decision does not preclude the FTC from addressing non-compete agreements on a case-by-case basis through enforcement actions.

“We are disappointed by Judge Brown's decision and will continue to fight to stop non-compete agreements that restrict the economic freedom of hard-working Americans, hamper economic growth, limit innovation and depress wages,” a spokeswoman said.

The FTC's rule does not take effect on September 4, meaning non-compete agreements will largely be subject to state law.

The outcome of the presidential elections in November could also influence the further development of this situation.

“If there is a change of party in the White House, it is possible that a Trump administration will decide to change leadership at the FTC and the agency will decide to drop the rule,” Brown said.

“In this situation, the Supreme Court may not have to make a decision.”

Alexis Keenan is a legal writer at Yahoo Finance. Follow Alexis on X @alexiskweed.

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