Ryan amends complaint, seeks expedited injunction of FTC noncompete ban

Two days ago (May 1), Ryan, LLC filed an amended complaint against the FTC’s noncompete rule and simultaneously moved to stay the rule’s effective date and to enjoin its enforcement.

Amended Complaint

Among other things, Ryan’s Amended Complaint adds claims under the Administrative Procedure Act, asserting both that the Rule is arbitrary and capricious and that it is impermissibly retroactive (despite the FTC’s curious assertion that the Rule does not operate retroactively).

As to the former, the Amended Complaint beefs up allegations concerning the arbitrary and capricious nature of the FTC’s findings. Among other things, the Amended Complaint points out that the FTC “inconsistently evaluate[d] the empirical studies on non-compete agreements,” relied on flawed researched, and made unsupported assumptions, all while ignoring or summarily rejecting conflicting research and comments from the 26,813 submissions it received.

By way of example, Ryan’s Amended Complaint makes the following allegations:

[T]he evidence the Commission was relying on was too new, too flawed, and too inconclusive to justify a per se rule over-ruling the policies of 46 States and hundreds of years of precedent allowing reasonable non-compete agreements. Indeed, one of the Commission’s own economists concluded in 2019 that “there is little evidence on the likely effects of broad prohibitions of non-compete agreements,” John M. McAdams, Federal Trade Commission, Non-Compete Agreements: A Review of the Literature 4 (2019), because “[d]ata on non-compete use in the U.S. are sparse,” id. at 3, and the methodological approaches to measuring the competitive effects of non-competes using that sparse data are often flawed, see id. at 10–13.”

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[C]ommenters pointed out numerous flaws in the Commission’s cost-benefit analysis. Commenters explained that the Non-Compete Rule’s projected benefits were overstated, and costs understated, because the Commission mis-analyzed the evidence on non-competes. Commenters also explained that the Commission substantially downplayed or ignored compliance costs, the costs of litigating trade secret claims, the cost of the economic drag caused by increased worker turnover, and the potential inflationary effects of the Non-Compete Rule.

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The Commission also exaggerates the benefits of the Non-Compete Rule by arguing that it would increase worker earnings. Rule at 441. Though the Commission based the Non-Compete Rule in substantial part on the claim that “non-competes suppress workers’ earnings,” Rule at 140, it finds that the Rule would increase wages a paltry 0.86%. Rule at 465. Wages grew more than that in the fourth quarter of 2023 alone. See Employment Cost Index – December 2023 at 2, Bureau of Labor Statistics, https://www.bls.gov/news.release/pdf/eci.pdf. TheCommission nowhere revisited its conclusion that non-competes “suppress” earnings in light of its separate conclusion that outlawing non-competes nationwide would have a minimal wage impact. Moreover, the Proposed Rule projected that CEOs and physicians would be among the principal beneficiaries of projected wage gains under the Rule, but the Adopting Release obscures and fails to address which workers would experience wage gains from the final rule. See 88 Fed. Reg. 3,482, 3,523–24 (Jan. 19, 2023). It therefore also fails to address whether it is reasonable to provoke a massive disruption in U.S. employment practices to benefit well-heeled workers so capable of fending for themselves that Congress has exempted them from key requirements of the federal wage and hour laws. See 29 U.S.C. § 213(a)(1).

Motion to Stay and Enjoin

Along with the Amended Complaint, Ryan filed a motion for a stay of the effective date of the Rule and a preliminary injunction preventing enforcement of the Rule. The motion is similar to the U.S. Chamber of Commerce’s motion filed on April 24.

In connection with its motion, Ryan requested an expedited briefing schedule.

Not surprisingly, the FTC promptly opposed the motion, requesting 21 days to file its opposition.

Yesterday (May 2), the Court granted Ryan’s motion and gave the FTC until 5:00 CT on May 7 to file its opposition.

Unless the schedule changes, expect to see the FTC’s opposition on Tuesday.

Lots of fun and games.

Stay tuned!