Articles Posted in Employment Law

Published on: October 9, 2024

DEFENDING FLORIDA EMPLOYERS: REVERSE DISCRIMINATION UNDER FEDERAL LAW

Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating based on “race, color, religion, sex or national origin.” The broad language of this statute makes employers susceptible to Title VII claims brought by employees. Most Title VII lawsuits are brought by members of a minority group. However, a member of a majority group claim can claim unlawful discrimination, which is often called a “reverse discrimination” claim. This is what happened in Ames v. Ohio Dep’t of Youth Services, 87 F.4th 822 (6th Cir. 2023). The plaintiff in Ames was a member of a majority group who sued for discrimination, and lost her lawsuit because she could not establish the heightened standard of proving discrimination that the United States Sixth Circuit Court of Appeals only applies to members of majority groups. The Supreme Court has now agreed to hear the case. The Mavrick Law Firm defends businesses and their owners in employment litigation, including cases alleging discrimination, retaliation, whistleblower status, and wages and related damages, as well as business litigation (including breach of contract litigation and related claims of fraud), non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

Federal courts have a well-established burden shifting test to analyze claims of discrimination under the landmark decision McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). The McDonnell Douglas test requires the plaintiff to first establish a prima facie case of discrimination, which has four elements: (1) the plaintiff is a member of a protected class, (2) the plaintiff was qualified for their position, (3) the plaintiff was subjected to an adverse employment action, and (4) the employer treated members outside of the protected class more favorably. If a plaintiff establishes a prima facie case, the burden then shifts to the employer to proffer a legitimate, non-discriminatory reason for the adverse employment action. The burden then shifts back to the plaintiff to prove that the employer’s proffered reason is pretext for discrimination.

In Ames v. Ohio Dep’t of Youth Services, 87 F.4th 822 (2023), a heterosexual woman sued her employer under Title VII alleging discrimination based on sexual orientation and sex. She alleged the employer hired her in 2004 and promoted in 2014. In 2017, she was assigned a homosexual supervisor. In 2019, the plaintiff applied for and interviewed for a higher position, but was not hired. A few days after the interview, the employer terminated the plaintiff from her then current position and offered her a demotion. The employer then hired a much younger and lesser experienced homosexual man to replace the plaintiff. The employer also chose a homosexual woman to fill the higher position that the plaintiff interviewed for.

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Published on: October 5, 2024

MIAMI BUSINESS LITIGATION: EMPLOYEES VS INDEPENDENT CONTRACTORS

By Mavrick Law Firm

It is important that businesses classifying workers as independent contractors ensure they are properly classified. Whether workers are independent contractors can have important implications for various federal and state statutes. For example, if a worker is an independent contractor, the business does not have to pay them overtime under the Fair Labor Standards Act. Many federal and state discrimination statutes cover only employers with a certain minimum number of employees. Title VII of the Civil Rights Act of 1965 (Title VII) and the Florida Civil Rights Act, for example, only cover employers with fifteen or more employees. Independent contractors are not counted for this purpose. This could exclude some small businesses that work with independent contractors outside the purview of Title VII. But how does one determine whether a worker is an independent contractor. The Miami business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

A worker is not an independent contractor simply because a business labeled them as such. The determination requires an in-depth legal analysis of the various aspects of the worker’s actual duties and relationship with the business. The Eleventh Circuit Court of Appeals established the following factors to determine whether a worker is an independent contractor under Title VII:

the kind of occupation, with reference to whether the work usually is done under the direction of a supervisor or is done by a specialist without supervision;

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Published on: September 7, 2024

MIAMI BUSINESS LITIGATION: LEGALITY OF GEOGRAPHIC AREA IN NON-COMPETE AGREEMENTS

By Mavrick Law Firm

Businesses commonly enter into restrictive covenants with their employees to prohibit them from unfairly competing with the business during and after employment. Restrictive covenants include contracts that restrict competition, such as non-compete agreements, non-disclosure agreements, and confidentiality agreements. When preparing a restrictive covenant, what provisions should be included? Typically, a business should include provisions that specifically define the geographic area, time limit, and line of business of the covenant. Many states require that the restrictive covenant be reasonable in time, geographic area, line of business, and be supported by a legitimate business interest. Seemingly, the requirement that a restrictive covenant be reasonable in geographic area means that the restrictive covenants should have a defined geographic scope. However, a recent case from the Supreme Court of Georgia, North American Senior Benefits, LLC v. Wimmer, 2024 WL 4029937 (Ga. 2024), has eliminated any such requirement in Georgia. The Miami business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The Georgia Supreme Court issued its decision in North American Senior Benefits, LLC v. Wimmer, 2024 WL 4029937 (Ga. 2024), on September 4, 2024. Wimmer involved a non-solicitation agreement between an employer and two former employees that prohibited the former employees from soliciting any employees of the employer. The non-solicitation agreement had an effective period of two years after the end of employment, and was not limited to a geographic area. The employees left the employer and started a competing business. The employer then sued the employees for violation of the non-solicitation provision. The trial court granted to the employees a motion for judgment on the pleadings because the non-solicitation provision did not define a geographic area, and the Georgia Court of Appeals affirmed. However, the Georgia Supreme Court reversed. The Georgia Supreme Court held that a restrictive covenant does not require an express geographic area. It reasoned that the geographic area can be determined “from the facts and circumstances” of the case without being expressly stated in the restrictive covenant.

Florida law also enforces restrictive covenants only if they are reasonable in time, geographic area, and line of business. Fla. Stat. § 542.335. Yet, some courts have also treated Florida’s geographic area requirement with flexibility. For example, recently, in Hayes Medical Staffing, LLC v. Eichelberg, 2024 WL 670440 (S.D. Fla., Jan. 23, 2024), a court in the Southern District of Florida granted a permanent injunction that enforced a non-disclosure provision that did not contain a geographic area. In another example, in Office Depot v. Babb, 2020 WL 1306984 (S.D. Fla., March 19, 2020), the court enforced a broad restrictive covenant that included the entire United States. It is also notable that Florida has the “blue pencil” rule. The “blue pencil” rule allows courts to modify an overly broad restrictive covenant to make its scope reasonable. See Fla. Stat. § 542.335 (“If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests.”).

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Published on: August 31, 2024

MIAMI BUSINESS LITIGATION: PREVAILING IN LAWSUIT AND RECOVERING ATTORNEYS’ FEES

By Mavrick Law Firm

Parties to a lawsuit are generally responsible for paying their own attorney’s fees regardless of the lawsuit’s outcome. This is known as the “American Rule.” However, exceptions to the American Rule exist when the lawsuit arises from a breach of contract that contains an attorney’s fee provision or the violation of a statute that contains an attorney’s fees-shifting provision. MV Senior Management, LLC v. Redus Florida Housing, LLC, 319 So. 3d 66 (Fla. 1st DCA 2020). These contracts and statutes require the non-prevailing party in the litigation to pay the reasonable attorney’s fees of the prevailing party. But determining who prevailed in complex lawsuits with multiple parties, claims, crossclaims, and counterclaims can be difficult. The Miami business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The leading case in Florida for determining who is the prevailing party in a breach of contract action is Moritz v. Hoyt Enterprises, Inc., 604 So. 2d 807 (Fla. 1992). In Moritz, the Supreme Court of Florida held that the prevailing party in litigation is the party that prevails on the “significant issues” in the case. The purchasers of a home paid an initial down payment to a vendor to purchase the home. The purchasers then attempted to repudiate the contract and subsequently sued for breach of contract to recover their down payment. The vendor counterclaimed for breach of contract. The trial court found that the purchasers breached the contract and the vendor did not. However, the trial court also ordered the vendor to return the difference between the purchaser’s down payment and the vendor’s damages to the purchaser. The Florida Supreme Court found that the significant issue in the litigation was the breach of contract issue. Therefore, because the vendor prevailed on that issue, the vendor was the prevailing party and entitled to attorney’s fees even though the purchasers were entitled to a larger judgment award.

Moritz indicates that, at times, it may be difficult to determine who is the prevailing party based on the “significant issue” test. The Supreme Court of Florida further addressed the matter in Prosperi v. Code, Inc., 626 So. 2d 1360 (Fla. 1993), where it stated that a net judgment is a “significant factor” but does not necessarily control the determination of who is the prevailing party. Interestingly, in cases involving the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), the Florida Fourth District Court of Appeal continues to focus on whether a party obtained a net judgment. FDUTPA claims are commonly included in lawsuits because FDUTPA has broad application and a fee-shifting provision. See Fla. Stat. § 501.2105 (2024). For example, in Banner v. Law Office of David J. Stern, P.A., 198 So. 3d 1133 (Fla. 4th DCA 2016), the Fourth District Court of Appeal held that “where a claim involves multiple claims directed at the same conduct,” to recover attorney’s fees, a party must “(1) recover judgment on the [FDUTPA claim], and (2) recover a net judgment for the entire case.” Employment litigation also has fee shifting provisions, sometimes evenly shifting fees to the winning party and in other statutes, the fee shifting is explicitly deferential to the litigating employee if he or she wins the case.

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Published on: August 21, 2024

FORT LAUDERDALE BUSINESS LITIGATION: COURT OVERRULES FEDERAL RULE BANNING NON-COMPETE CONTRACTS

By Mavrick Law Firm

The Federal Trade Commission’s (FTC) rule banning most non-compete agreements continues to produce legal developments. Conflicting opinions were previously issued by a court in the U.S. District Court for the Northern District of Texas and by a court in the U.S. District Court for the Eastern District of Pennsylvania. In Ryan LLC v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex., July 3, 2024), the United States District Court for the Northern District of Texas issued a preliminary injunction prohibiting the enforcement of the FTC’s rule against the named plaintiff in that case. On the other hand, in ATS Tree Services, LLC v. FTC, Case No. 2:24-CV-01743, 2024 WL 3511630 (E.D. Pa., July 23, 2024), the court denied a motion for a preliminary injunction to prevent enforcement of the rule. On August 20, 2024, this legal saga saw another significant development as the Ryan LLC court issued a permanent injunction against the FTC rule in Ryan LLC v. FTC, Case No. 3:24-CV-00986, 2024 WL 3879954 (N.D. Tex., Aug. 20, 2024). Unlike the preliminary injunction that the court previously issued, the permanent injunction is national. The non-compete agreement ban, which was scheduled to go into effect on September 4, 2024, is now nullified due to the permanent injunction of the federal court. This, however, is subject to appeal and other possible legal developments. The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The federal court in Ryan LLC issued the permanent injunction based on many of the same reasons as its preliminary injunction entered earlier in the case. The Judge relied heavily on the federal Administrative Procedures Act (APA), which requires that courts set aside administrative agency actions when they are “arbitrary, capricious, or otherwise not in accordance to the law” or “in excess of statutory jurisdiction, authority, limitations, or short of statutory right.” 5 U.S.C. § 706. In applying the APA, the court found that the FTC Act does not grant substantive rulemaking authority to the FTC, and the non-compete ban is arbitrary and capricious. 2024 WL 3879954. The court reasoned that the FTC Act does not grant it substantive ruler making authority. Section 6 only vested the FTC with the authority “to make rules and regulations to carry out the provisions of the subchapter.” The Ryan LLC court characterized section 6 as a “housekeeping” statute. See also Chrysler Corp. v. Brown, 441 U.S. 281 (1979). It lacks a statutory penalty and is in a nonessential location. In addition, the court determined the non-compete ban is arbitrary and capricious because it is unreasonably broad. The studies the FTC relied on a to enact its rule did not support a such a sweeping ban.

In reaching its holding, the Ryan LLC court did cite to Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), the recent Supreme Court case that eliminated court deference to agency rules. This reference suggests the court did not provide deference to the rule that would normally be applied before the Looper Bright Enterprises decision. However, the court did not expressly make such a ruling.

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Published on: August 17, 2024

MIAMI BUSINESS LITIGATION: TRADE SECRETS AND CONFIDENTIALITY CONTRACTS

By Mavrick Law Firm

It is important for every business to take extensive efforts to protect their trade secrets and limit their disclosure to persons with subject to comprehensive confidentiality agreements. Often, trade secret misappropriation occurs when a business shares its trade secrets with an outside vendor. This is exactly what a plaintiff claims to have happened in Ecolab, Inc. v. IBA Inc. & Webco Chemical Corp., Case No. 4:24-cv-40407-DHH (D. Mass., August 14, 2024), a recent case filed in the U.S. District Court of Massachusetts. Ecolab shows the importance of businesses being careful with whom they share their trade secrets and effectively using confidentiality agreements. Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

According to the complaint filed by the plaintiff, Ecolab, Inc. (Ecolab), Ecolab creates and sells infection prevention products. This includes “acified sodium chlorite teat dip products” (ASC products) that Ecolab sells to the dairy industry. Ecolab alleges it developed these products after extensive efforts over a period of several years, and its manufacturing process for its ASC products constitute trade secrets.

Ecolab contracted with IBA Inc. (IBA) in 2002 to manufacture and distribute Ecolab’s ASC products. Ecolab had to share its trade secrets with IBA to facilitate IBA’s manufacturing duties. Before disclosure, Ecolab required IBA to execute a confidentiality agreement prohibiting IBA from disclosing the trade secrets or using the trade secrets for its own purposes. The confidentiality agreement allowed IBA to disclose the trade secrets to third party subcontractors as long as the subcontractors were subject to the same confidentiality provisions. IBA then, with Ecolab’s permission, contracted with Webco Chemical Corporation (Webco) for Webco to manufacture the ASC products, while IBA would distribute them. Webco also executed a confidentiality agreement. The three parties continued this relationship until 2022, when, as Ecolab alleges, IBA and Webco stole Ecolab’s trade secrets and released their own line of competitive ASC products.

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Published on: July 27, 2024

MIAMI BUSINESS LITIGATION: ABUSE OF PROCESS CLAIMS UNDER FLORIDA LAW

By Mavrick Law Firm

Under Florida law, the tort of abuse of process involves the use of criminal or civil legal process against another primarily to accomplish a purpose for which it was not designed. Florida’s Third District Court of Appeal in Cline v. Flagler Sales Corp., 207 So.2d 709 (Fla. 3d DCA 1968), discussed the elements abuse of process and stated in pertinent part, “[i]n an action for abuse of process it is not essential to show a termination of the proceeding in favor of the person against whom the process was issued and used, or to show want of probable cause or malice. The cause of action consists of the willful or intentional misuse of process; a willful and intentional misuse of it for some wrongful or unlawful object, or ulterior purpose not intended by the law to effect.” Abuse of process is sometimes confused with the tort of malicious prosecution, which is a distinct cause of action. A leading legal treatise, Prosser on Torts, 3rd Ed., Ch. 23, Misuse of Legal Procedure, section 115, page 877, explained that: “Thus if the defendant prosecutes an innocent plaintiff for a crime without reasonable grounds to believe him guilty, it is malicious prosecution; if he prosecutes him with such grounds to extort payment of a debt, it is abuse of process.” The Miami business litigation attorneys of the Mavrick Law Firm represent clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In the years since the Cline appellate decision, Florida jurisprudence further developed what is required to establish an abuse of process. Bothmann v. Harrington, 458 So.2d 1163 (Fla. 3d DCA 1984), explained that abuse of process requires “a use of the process for an immediate purpose other than that for which it is designed…’Legal malice’ is presumed to exist if the plaintiff establishes that the process has been used for an improper purpose.” However, “[t]here is no abuse of process, however, when the process is used to accomplish the result for which it was created, regardless of an incidental or concurrent motive of spite or ulterior purpose. In other words, the usual case of abuse of process involves some form of extortion…Even a pure spite motive is not sufficient where process is used only to accomplish its intended purpose.” Relying on W. Prosser, Handbook of the Law of Torts § 121 (4th ed. 1971), Brothmann added that: “Some definite act or threat not authorized by the process, or aimed at an objective not legitimate in the use of the process, is required; and there is no liability where the defendant has done nothing more than carry out the process to its authorized conclusion, even though with bad intentions. The improper purpose usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, such as the surrender of property or the payment of money, by the use of process as a threat or club. There is, in other words, a form of extortion, and it is what is done in the course of negotiation, rather than the issuance or any formal use of the process, itself, which constitutes the tort.” Express or implied extortion sometimes occurs in, inter alia, employment and commercial litigation.

Although the tort of abuse of process often is tied to a form of extortion, it is not an element of the claim. Florida’s Fourth District Court of Appeal, in Della-Donna v. Nova University, Inc., 512 So.2d 1051 (Fla. 4th DCA 1987), explained in pertinent part that: “For a plaintiff to establish a cause of action for abuse of process, it must be proved that the defendant made illegal, improper, or perverted use of process; that the defendant had ulterior motives or purposes in exercising such illegal, improper, or perverted use of process; and that as a result of such action on the part of the defendant, the plaintiff suffered damage…[T]he tort of abuse of process is concerned with the improper use of process after it issues.”

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Published on: July 24, 2024

FORT LAUDERDALE BUSINESS LITIGATION: DEVELOPMENTS IN FTC BAN OF NON-COMPETE AGREEMENTS

By Mavrick Law Firm

Developments regarding the Federal Trade Commission’s (FTC) prohibition of non-compete agreements continue. Recently, a court in the Eastern District of Pennsylvania denied a motion for preliminary injunction to prevent enforcement of the ban in ATS Tree Services, LLC v. FTC, Case No. 2:24-CV-01743, 2024 WL 3511630 (E.D. Pa., July 23, 2024). This decision conflicts with Ryan LLC v. FTC, Case No. 3:24-CV-00986 (N.D. Tex., July 3, 2024), wherein the court granted a preliminary injunction preventing enforcement of the ban. Peter Mavrick is a Fort Lauderdale business litigation attorney. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

In denying the motion for preliminary injunction, the court in ATS Tree Services, LLC found that the plaintiff did not establish irreparable harm or the likelihood of success on the merits. 2024 WL 3511630. The plaintiff argued, among other things, that the FTC rule would cause it to suffer irreparable harm because the plaintiff’s employees could immediately leave employment to work for a competitor thereby depriving the plaintiff of the benefits of the training it provided its employees. The plaintiff also claimed it would be irreparably harmed because there was a risk its employees would expose the employer’s confidential information to a competitor once they left the company. However, the court rejected both arguments. The argument regarding deprivation of training benefits was rejected because it was too speculative. The plaintiff did not provide any evidence that its employees would actually leave to work for a competitor. The argument regarding disclosure of confidential information was rejected because The FTC’s non-compete ban does not apply to non-disclosure agreements.

The court also denied the plaintiff’s request for an injunction prohibiting enforcement of the ban against non-compete agreements. The court determined that the plaintiff was not likely to succeed on the merits. The court determined the FTC had authority to engage in substantive rulemaking or its authority was not limited to procedural rulemaking. 2024 WL 3511630. The court analyzed the language of Section 6 of the FTC Act, which allows the FTC to “make rules and regulations for the purpose of carrying out the provisions of this chapter.” 15 U.S.C. § 46. The ATS court stated Section 6 does not explicitly limit the FTC’s rulemaking authority to only procedural rulemaking. In addition, the court analyzed Section 5 of the FTC Act, which allows the FTC to “prevent persons, partnerships, or corporations . . . from using unfair methods of competition . . . .” 15 U.S.C. § 45. Use of the word “prevent” inherently contemplates substantive rulemaking. 2024 WL 3511630. This holding contradicts the reasoning in Ryan LLC, which determined the FTC did not have substantive rulemaking authority. Ryan LLC, 2024 WL 3297524. Ryan LLC characterized Section 6 as a “housekeeping” statute.

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Published on: July 10, 2024

FORT LAUDERDALE BUSINESS LITIGATION: LEGAL CHALLENGES TO FTC RULE AGAINST NON-COMPETE AGREEMENTS

By Mavrick Law Firm

The Federal Trade Commission (FTC) controversially issued a final rule banning most non-compete agreements. This rule severely impedes the ability of businesses to protect their legitimate business interests such as customer relationships, goodwill, confidential business information, and trade secrets. However, the FTC’s rule is facing legal challenges from different directions. Last week we wrote about a direct legal challenge and the Northern District of Texas’ injunction prohibiting enforcement of the rule. Ryan LLC v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex., July 3, 2024). This week we examine a potential future indirect challenge to the FTC’s rule based on the Supreme Court Loper Bright Enterprises v. Raimondo, __ S. Ct. __, 2024 WL 3208360 (2024) decision eliminating Chevron deference. As discussed more fully below, Loper Bright effectively removed a tool the FTC could have used to enforce its non-compete ban. Peter Mavrick is a Fort Lauderdale business litigation attorney. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

The Supreme Court established the legal doctrine known as Chevron deference in the case Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Chevron deference required court to be highly deferential to agency regulations. It established a two-step process a court must employ when determining whether to rely on an agency regulation. First, the court must determine “whether Congress has spoken to the precise question at issue.” This is done by reviewing the clarity of the relevant statute at issue. Second, if “the statute is silent or ambiguous with respect to the specific issue”, then the court must defer to an agency regulation when it “is based on a permissible construction of the statute.” This holding shifts power away from the executive branch of government and the agencies associated therewith in favor of the judicial branch of government.

In practice, Chevron essentially determined that agency regulations are binding precedent. In fact, courts have used Chevron as the foundation to enforce FTC regulations. See Mattox v. FTC, 752 F.2d 116 (5th Cir. 1985) (finding that FTC regulations regarding Hart-Scott-Rodino Act entitled to Chevron deference); Nat’l Automobile Dealers Ass’n v. FTC, 864 F. Supp. 2d 65 (D.D.C., May 22, 2012) (holding that FTC regulation regarding Fair Credit Reporting Act was entitled to Chevron deference). Therefore, FTC could have attempted to rely on Chevron to enforce its non-compete ban before Loper Bright.

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Published on: July 6, 2024

MIAMI BUSINESS LITIGATION: FTC CANNOT ENFORCE RULE AGAINST NON-COMPETE AGREEMENTS

By Mavrick Law Firm

Non-compete agreements have been a standard business practice for many years. Businesses use non-compete agreements to protect their interests like proprietary business information, trade secrets, customer, goodwill, staff, and others. However, on April 23, 2024, the Federal Trade Commission (FTC) upended this long-standing business practice by issuing a rule banning most non-compete agreements. See 16 C.F.R. § 910. The FTC’s new rule was recently challenged in Ryan LLC et. al v. FTC, and the court enjoined the FTC from enforcing its ban. Ryan LLC et. al. v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex. July 3, 2024). Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The court prohibited the FTC from enforcing its non-compete ban because the FTC exceeded its statutory authority. See Am. Fin. Services Ass’n v. F.T.C., 767 F.2d 957 (D.C. Cir. 1985) (“The judiciary remains the final authority with respect to questions of statutory construction and must reject administrative agency actions which exceed the agency’s statutory mandate or frustrate congressional intent.”). The court based its decision on the plain meaning of the FTC Act, which only grants the FTC procedural rulemaking authority for rules regarding unfair methods of competition as opposed to substantive rulemaking authority. 15 U.S.C. § 46; see also W. Virginia v. Envtl. Prot. Agency, 597 U.S. 697 (2022) (“It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.”). The applicable statute allows the FTC to “make rules and regulations for the purpose of carrying out the provisions of this subchapter.” 15 U.S.C. § 46. The Ryan LLC court interpreted this statute as a “housekeeping” statute because it lacks penalty provisions and was historically for procedural rulemaking. Ryan LLC, 2024 WL 3297524 (citing Chrysler Corp. v. Brown, 441 U.S. 281 (1979) (“It is indeed a “housekeeping statute,” authorizing what the APA terms “rules of agency organization procedure or practice” as opposed to “substantive rules.”)).

The court also issued a preliminary injunction because it was substantially likely the FTC’s non-compete ban was arbitrary and capricious. Ryan LLC, 2024 WL 3297524 (“[B]ecause the FTC is an administrative agency, the Commission’s actions are constrained by the APA’s arbitrary-and-capricious standard.”); see also Fed. Communications Comm’n v. Prometheus Radio Project, 592 U.S. 414 (2021) (“The APA’s arbitrary-and-capricious standard requires that agency action be reasonable and reasonably explained.”). The FTC lacked evidence demonstrating why it chose a sweeping ban against most non-competes instead of targeting specific non-competes, failed to consider the positive benefits of non-compete agreements, and insufficiently addressed rule alternatives. Ryan LLC, 2024 WL 3297524.

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