Mark Pestronk
Q: In last week's Legal Briefs column, you noted that a Texas federal judge temporarily stopped the Federal Trade Commission's (FTC) noncompete rule from taking effect and that the judge would issue a final decision by Aug. 30. Has the judge issued a final decision? Does it apply nationwide? What are the implications for noncompetes in general? Would the judge's rationale apply to travel business rules issued by the DOT, such as the full-price rule and the codeshare rule?
A: The judge issued a final decision on Aug. 21. She permanently set aside the FTC's rule, with immediate effect, on the grounds that Congress did not give the FTC the power to issue substantive rules governing methods of competition. The judge also held that the particular rule was arbitrary and capricious.
For generations, the FTC has adopted rules governing various industries. According to the judge's reasoning, if the rules were intended to curb anticompetitive behavior and promote competition, the FTC lacked authority to adopt them.
The FTC has not yet filed an appeal, but it probably will do so. The appeal may not stand much of a chance, as it will be decided by the most conservative federal appeals court in the nation.
So, the FTC rule outlawing noncompetes is effectively dead nationwide. Unless the Democrats are swept into office, it is also unlikely that there will be any action at the federal level.
The absence of federal regulation means that each state's noncompete laws will govern. As you probably know, California and a few other states totally outlaw noncompetes for employees (but not independent contractors), but most states don't do so if the clauses are "reasonable" as to scope, duration and geographic area.
The status quo presents two big problems for travel businesses and their employees: First, you may not know exactly what a court will find "reasonable" until the case goes to court, so employment attorneys must often base their advice on educated guesses. Second, if employer and employee are in different states, you have to figure out which state's law applies, and if both apply, you have to follow the one that is stricter.
Because President Trump got to appoint so many federal judges, including Supreme Court justices, federal courts are now more likely to scrutinize administrative agency regulations than they were pre-Trump. As a result of the Supreme Court's recent decision overturning the doctrine that required courts to defer to the administrative agencies' expertise, we can expect more federal regulations to be second-guessed and set aside.
For example, the numerous pro-consumer DOT travel rules that have been adopted over the past decade may be at risk. Although it is too late to appeal them, an airline or other regulated travel business that is fined by the DOT can defend by attacking the DOT's basis for adopting the rule.
Although DOT's rulemaking authority is clearer than the FTC's, many federal judges are going to be receptive to such arguments, and they are going to feel free to substitute their judgment for the DOT's expertise.