Hawaii Real Estate
Hawaii Real Estate
Noncompete Ban
In a little more than four months, the Federal Trade Commission intends to void a half million Hawaii noncompete agreements. We summarize the commission’s newly-announced, finalized rule banning noncompete agreements; examine how it will affect Hawaii noncompete law, including law relating to the validity and enforceability of related confidentiality and noncompete agreements and nonsolicitation agreements; evaluate complaints filed in federal district courts this past week seeking to delay or halt the ban; and offer strategies for protecting your valuable investments in human capital and intellectual property.
Noncompetes (Part II)
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Introduction
E Komo mai. Welcome to Hawaii Real Estate, a podcast by the Hawaii Association of REALTORS®. Our podcast airs the first Wednesday of each month. Each episode includes a Real Data Report, which describes, Hawaii pricing, inventory, and market conditions, as well as a special focus piece, which comments on a current legal issue in the buying, selling, leasing, or managing of property in Hawaii.
Astute listeners will note that today is not Wednesday. Today is Friday, May 3, 2024. Our apologies for our delayed release. Your intrepid host fell prey to a pervasive seasonal malady; and while his spirit remained undaunted, his voice was unfortunately subdued.
But now he’s back!
Today’s podcast discusses the Federal Trade Commission’s finalized rule banning noncompete agreements. The commission announced its rule last Tuesday, April 23, 2024. If the courts do not intervene, the ban becomes effective in a little more than four months, at which time it will automatically void approximately half-a-million existing Hawaii noncompete agreements, open new lines of civil liability to employers who do not properly notify their past and current workers that their noncompetes are no longer enforceable, and ban nearly all future noncompete agreements.
We summarize the ban’s important components, including its exceptions, examine how it will affect Hawaii noncompete law; and evaluate complaints filed in federal district courts this past week seeking to delay or stop the ban.
But first, as always, we have the most recent Hawaii home pricing and inventory data, as well as new information and analysis on mortgage and interest rates.
No time to hem and haw. We’re two days behind. Let’s get right into our Real Data Report.
Real Data Report
Interest Rates
The Federal Reserve’s Open Market Committee met April 30th-May 1st and decided to maintain the federal funds target range between 5.25 and 5.5%, reflecting its commitment to stabilize economic growth while managing inflationary pressures. The target range of 5.25-5.5% is the highest in over 20 years. We have now held within this generationally high target range for more than nine months. And we will remain in this range until at least June, when the Fed next meets to discuss whether it change interest rates.
Many had expected the central bank to make multiple rate cuts this year. Until the Personal Consumption Expenditures Price Index and other important economic indicators show inflation falling, however, rate cuts are unlikely.
The Fed next meets in June. We’ll see what they do then.
Mortgage Rates
Recent Mortgage Rates Overview
Over the last three months, we've observed some fluctuations in the 30-year fixed rate mortgage average in the United States. The data up to May 2, 2024, shows rates for the 30-year fixed rate mortgage gradually increasing: .
· February 15, 2024: 6.77%.
· March 28, 2024: 6.79%.
· May 2, 2024: 7.22%.
The average mortgage rate over the past quarter was approximately 6.92%. This marks an increase from the previous quarter's average of 6.80%, translating to a rate change of approximately 1.80%. This indicates a rising trend in mortgage rates.
Implications for the Hawaii Real Estate Market
The incremental rise in mortgage rates continue to influence buying decisions, impacting affordability and potentially cooling the demand in the real estate market, as you will see when we get to this report’s section on housing pricing and inventory.
Clients looking to sell might find it advantageous, however, to enter the market while rates are still relatively low compared to historical highs, and potential buyers might be encouraged to act swiftly before rates climb further.
Price
Hawaii Real Estate Market Overview
In Hawaii, the median listing price for March 2024 stood at $845,000, showing a slight decrease from last month's $850,000. When compared to March 2023, when the median listing price was $835,460, there is a noticeable increase of 1.14% year-over-year.
National Real Estate Perspective
On the national front, the median listing price in the United States for March 2024 was $424,900, which is up from February 2024's figure of $415,500. This indicates a 2.26% month-over-month increase, highlighting a faster pace of growth as compared to Hawaii over the past month. Over the past year, however, the national median listing price has risen by 0.21%, a significantly slower growth rate compared to Hawaii's market.
Insights for REALTORS®
Hawaii's real estate market continues to outperform the national average in terms of year-over-year price increases, reinforcing its unique position as a high-value market. The slight dip from February to March suggests a stabilization that might benefit buyers looking for competitive pricing in this robust market.
Inventory
Hawaii homes stayed on the market for a median of 67 days in March 2024, down from 70 days in February 2024, showing a modest quickening in the pace of sales. Compared to March 2023, the median days on market remains unchanged, indicating a stabilization in how quickly homes are moving in the market. By contrast, the median days on market for the United States as a whole was 50 days in March 2024, reflecting a faster pace nationally than in Hawaii. The national figures decreased from 61 days in February 2024, a sharper month-over-month improvement compared to Hawaii.
There has been a consistent increase in both new and active listings in Hawaii. The month-over-month and year-over-year growth in active listings (5.11% and 2.99%) suggests not only are more properties being put on the market, but they are also not being absorbed as quickly as they are listed. This could indicate a cooling market where buyers have more options and may take longer to make purchasing decisions.
Compared to the national average, however, the rise in active listings in Hawaii looks positively modest. Active listings in the United States increased over last year by 23.54%. So, while Hawaii’s market continues to swell, mainland market swelling is striking more pronounced manner.
Focus Piece
Introduction
Welcome to the Focus Piece.
In a little more than four months, the Federal Trade Commission intends to void a half million Hawaii noncompete agreements. Noncompete agreements entered into in Hawaii or anywhere else in the United States on or after that date will, unless entered into as part of a bona fide sale of a business, be banned.
Hawaii already restricts noncompete agreements. Any term or condition of employment in Hawaii that prohibits a worker from, penalizes a worker for, or functions to prevent to prevent a worker from seeking or accepting work or operating a business must be made for a legitimate ancillary purpose, like protecting trade secrets, confidential business information, or special client relationships, and must be tailored for accomplishing that purpose (i.e., the noncompete agreement must be broader than is necessary to protect trade secrets, confidential business information, special client relationships, or other legitimate business interest protected by the agreement). If done right, though, noncompete agreements in Hawaii are perfectly valid and enforceable.
But the Federal Trade Commission’s rule is an outright ban.
In this focus piece, we summarize the ban’s important components, examine how it will affect Hawaii noncompete law, including law relating to the validity and enforceability of related confidentiality and noncompete agreements and nonsolicitation agreements; evaluate complaints filed in federal district courts this past week seeking to delay or halt the ban; and offer strategies for protecting your valuable investments in human capital and intellectual property.
Commission, Problem, Solution
Most people aren’t very well familiar with the Federal Trade Commission. That’s understandable. For years, it was a quiet or background federal agency. It’s biggest rulemaking splash occurred in the 1970s when it required gas stations to display octane ratings.
Recently, however, it has become significantly more aggressive. In the last few years, it has blocked major mergers, like Kroger’s attempted acquisition of Albertsons for $24.6 billion, sued multinational corporations alleging unfair or deceptive acts or practices or unfair methods of competition (like its consumer protection lawsuit against Meta, the parent company of Facebook, alleging that Facebook violated its privacy promises to its customers, and like its antitrust lawsuit against Amazon alleging that Amazon is using its market dominance to prevent competition). It’s latest move we discuss here: a finalized a rule banning noncompete agreements binding about 30 million Americans. So, although the FTC may not be well known to many, its new aggressive posture demands that we pay it a bit more heed.
The Federal Trade Commission is a federal agency charged with preventing unfair methods of competition in commerce. Under the commission’s interpretation of its enabling legislation, it has authority to declare “unfair methods of competition in commerce” to be unlawful and to issue substantive rules prohibiting those methods of competition.
Last January, the commission set its sights on noncompete agreements. It argued that noncompete agreements were an unfair method of competition because they restricted competition for labor (suppressing, in its view, earnings and working conditions).
But both the Federal Trade Commission and noncompete agreements have existed for more than a century. So why would the commission move to ban noncompete agreements now?
Proposed Rule
A recent groundswell of political energy has built under efforts to restrict or outright ban noncompete agreements. A survey by FairCompetitionLaw.com in June 2023 found that 33 state legislatures at that time were considering a total of 82 bills aimed at banning or severely restricting noncompete agreements.
The U.S. Congress has also recently taken a few swings at noncompete agreements. Federal legislators offered the Restoring Workers’ Rights Act of 2022 and the Freedom to Compete Act of 2019, each of which would broadly restrict noncompete agreements throughout the country. On a more limited basis, federal legislators also the VA Hiring Enhancement Act in 2018 and the EVEN Act last year. Each of those bills were designed to regulate the enforceability of certain specified noncompete agreements. But each of these federal efforts to restrict noncompete agreements have failed.
Although states continue to restrict noncompete agreements governed by their law, there has never been a rule expressly regulating noncompete agreements nationally. So, again, why is the FTC acting now to restrict noncompete agreements?
President Biden issued an executive order on July 9, 2021 directing the commission to exercise its statutory rulemaking authority to curtail the unfair use of noncompete agreements that could unfairly limit worker mobility. Shortly thereafter, Lina Kahn, the young, smart, motivated, and new FTC chair, who by the way clearly has a penchant for challenging large corporate mergers and monopolistic practices that previously might have faced less scrutiny, ran with President Biden’s order to use the FTC’s rulemaking authority to curtail the unfair use of noncompete agreements that could unfair limit worker mobility.
After conducting multiple workshops on the issue, the commission announced on January 4, 2023 its first-ever enforcement actions targeting companies that, in the commission’s view, imposed harmful noncompete provisions on their workers. The next day, the commission proposed a rule banning noncompete agreements.
The commission’s proposed rule received more than 26,000 public comments, 96% of which were in support. Last Tuesday, April 23, 2024, the commission issued a final rule banning noncompete agreements nationwide, to become effective later this year.
Final Rule
Effective Date
The FTC’s rule banning noncompete agreements is final. Unless a federal court intervenes, it should take effect banning approximately half a million Hawaii noncompete agreements early this September.
We can’t give you a more precise effective date for a couple reasons. First, the rule becomes effective 120 days after its published in the Federal Register, which should happen soon but hasn’t happened yet. Second, we can’t give you a precise day upon which the rule will become effective because plaintiffs in the U.S. District Courts for the Eastern District of Texas, Northern District of Texas, and Eastern District of Pennsylvania are, as I speak, seeking to invalidate the ban or delay its implementation. (More on these court challenges later this episode.) So we can’t give you date certain that the rule will become effective, but barring federal court intervention, the rule should become effective early this September.
Breadth
The FTC’s rule banning noncompetes is immensely broad, nearly comprehensive. By the commission’s own estimate, its rule would ban noncompete agreements with well over 90% of all workers.
There are exceptions. The FTC rule doesn’t ban, for instance, noncompete agreements entered into with senior executives before the ban takes effect this September, or whatever later date the ban actually takes effect. Also excepted from the ban are noncompete agreements that are entered into as part of a bona fide sale of a business. Noncompetes that fall into either the senior executive or bona fide sale exception will remain valid, unless otherwise prohibited by applicable state law.
But noncompetes entered into with other workers on or after the FTC’s rule effective date will be banned. It doesn’t matter if the worker is an employee, independent contractor, or intern. It doesn’t matter if the worker is paid or unpaid. It doesn’t matter if the worker continues to work for the employer or left the employer years ago. Any noncompete agreement binding a worker on or after the FTC rule becomes effective will be void ab initio.
That means “void from the start.” Any term or condition existing on or after the FTC rule goes into effect that purports to prohibit a worker from, penalizes a worker for, or functions to prevent a worker from seeking or accepting work with another employer or operating a business of their own is a noncompete agreement under the commission’s ban and, therefore, as of the date the ban goes into effect, unenforceable.
Employers on or after the ban’s effective date cannot enter into or attempt to enter into a noncompete, enforce or attempt to enforce a noncompete, or represent to a worker that they are subject to a noncompete.
Let’s see how that plays out with a practical example.
Example
A Hawaii real-estate brokerage, "AI Realty” (AIR), has developed a cutting-edge artificial intelligence software, "AlohaPredict," which can accurately predict which homeowners will sell their properties within the next 90 days. This software not only identifies potential sellers but also provides detailed analysis of the homeowner's motivations, optimal pricing strategies, and tailored marketing approaches based on individual seller profiles.
Jordan, a highly skilled real estate agent with over a decade of experience in the Hawaiian real estate market, is hired by AIR. Jordan is trained extensively in using AlohaPredict and becomes integral in refining its algorithms and applying its insights.
AIR's business model relies heavily on first-mover advantages in securing listings before competitors. Due to the highly competitive nature of real estate in Hawaii, where early information leads directly to significant revenue, AlohaPredict provides AIR with a substantial edge over competitors.
Jordan signs a confidentiality and nondisclosure agreement that prohibits disclosing any information about AlohaPredict. Additionally, a nonsolicitation agreement prevents Jordan from contracting any of AIR’s clients for one year post-employment.
But Jordan also signs a noncompete agreement (the AIR-Jordan noncompete). The AIR-Jordan noncompete prohibits Jordan from leaving AIR anytime in the next six months to work for another real estate brokerage on Oahu’s windward side.
Jordan will never violate the confidentiality and nondisclosure agreement or nonsolicitation agreement, but at some point within the next six months he will breach the AIR-Jordan noncompete by leaving AIR and joining another Windward brokerage, Washington Wizard. When he makes that move before or after the federal noncompete ban takes effect, however, could be highly consequential.
Whether he makes that move before or after he the Federal Trade Commission’s rule banning noncompete ban takes effect, however, could turn out to be highly consequential.
Before FTC Ban’s Effective Date
If Jordan left AIR for Washington Wizard before the federal noncompete ban’s effective date, AIR would likely have a substantial basis for suing him for breaching the AIR-Jordan noncompete.
Hawaii law prohibits contracts entered into for the purpose of preventing competition, but allows noncompete agreements made in support of some “legitimate ancillary purpose”, like protecting trade secrets, confidential business information, or special customer relationships. Because the AIR-Jordan noncompete was entered into in part to help guard AIR’s valuable proprietary software and related special customer relationships, a Hawaii court would likely find that the AIR-Jordan noncompete agreement was made for a “legitimate ancillary purpose.”
To uphold the AIR-Jordan noncompete and enforce its provisions against Jordan, a court would only then have to determine whether the noncompete was reasonable. Hawaii won’t uphold noncompetes that impose restrictions that are greater than necessary to protect an employer’s legitimate business interest. So, to enforce the noncompete against Jordan, a court would have to find that the AIR-Jordan noncompete was the least restrictive means to protect AIR’s legitimate business interest in AlohaPredict and the special client relationships its unique predictive modeling spawns.
As to AlohaPredict, Jordan's role involves not just using, but enhancing AlohaPredict. His deep involvement in refining the predictive model and strategy makes him uniquely capable of replicating or adapting similar strategic insights if employed by a competitor, even without disclosing any specific proprietary information. Once a special skill is developed, you can’t force someone to forget it, and preventing them for employing it—whether intentionally or inadvertently—is difficult or impossible.
So, unless the court finds that the noncompete agreement imposes some undue hardship on Jordan or inflicts some injury onto the public that outweighs protecting AIR’s interest in AlohaPredict, the court will likely enforce the noncompete agreement’s provisions against Jordan because less restrictive legal mechanisms, like the confidentiality and nondisclosure agreement and nonsolicitation agreement, are simply insufficient.
As to the special client relationships, real estate in Hawaii is driven by deep personal relationships and trust. Jordan, given his charm and expertise, becomes a preferred agent for top-tier clients due to the successful use of AlohaPredict. These relationships, while not strictly confidential or proprietary, are cultivated using the insights from AlohaPredict, blurring the lines between personal rapport and strategic advantage.
The nonsolicitation agreement Jordan signed stops him from directly soliciting AIR’s clients, but does not prevent him from working with them if they reach out to him independently, nor does it stop him from using a similar predictive approach at another firm.
So, unless the court finds that the AIR-Jordan noncompete imposes some undue hardship on Jordan or inflicts some injury on the public that outweighs the benefits it provides AIR, a court would likely uphold the noncompete.
If Jordan breaches the noncompete before the Federal Trade Commission’s noncompete ban’s effective date, he could open himself to some nasty legal consequences:
· AIR could seek a preliminary or permanent injunction to stop him from working for Washington Wizard during the noncompete period. Jordan could be forced to leave Washington Wizard.
· A court could also order Jordan to pay monetary damages in an amount equal to the profits AIR lost as a direct result of Jordan’s early departure. Alternatively, if damages were not reasonable ascertainable at the time Jordan and AIR contracted, a court could order Jordan to pay any liquidated damages provision contained in the AIR-Jordan noncompete that it finds reasonable and not punitive.
· If the AIR-Jordan noncompete required AIR to make payments to Jordan in return for Jordan’s promise to not work for another brokerage during the noncompete period, then a court could also order Jordan to return those payments he received while working for Washington Wizard.
But if AIR waits until the commission’s rule banning noncompete agreements goes into effect to enforce the AIR-Jordan noncompete against Jordan, then the consequences for the parties could flip.
After FTC Ban’s Effective Date
According to the commission, “The vast majority of existing agreements covered by the final rule fall into . . . [the] category of agreements that expressly prohibit a worker from seeking or accepting other work or starting a business . . . .”, like the AIR-Jordan noncompete, which prohibits Jordan from leaving AIR to work for another brokerage. So what would happen if AIR waited until the commission’s new rule went into effect before seeking to enforce the AIR-Jordan noncompete against Jordan?
Nothing—at least nothing to Jordan. On the day the noncompete ban goes into effect, the law will view the AIR-Jordan noncompete as never having existed. So there would be no reasonability test or search to see if the agreement supported a legitimate ancillary purpose. As a contract that prohibits a worker from seeking or accepting work, the AIR-Jordan noncompete would be void from the start—there would be no provision to interpret or enforce. Jordan would be completely free.
AIR could not receive monetary damages for lost profits or other harm it suffered from Jordan’s breach. It couldn’t even receive monetary damages for lost profits it incurred after Jordan left but before the ban went into effect.
If the agreement required AIR to make monthly payments to Jordan for staying with AIR, which it continued making after Jordan began working for Washington Wizard, there’s a possibility that AIR could recoup those payments on a common law tort theory called, “unjust enrichment.” But because the agreement with Jordan is void from the start as of the date the noncompete ban’s effective date, AIR would not be able to recover those payments under any breach of contract theory.
As of the ban’s effective date, the AIR-Jordan noncompete simply doesn’t exist and, under the eyes of the law, never existed.
Workers must receive notice that they are no longer bound by their noncompetes. So the Federal Trade Commission’s rule requires employers to notify their past and current workers who, if not for the noncompete ban, would be bound by a noncompete with their employer. The employer must notify the worker that they noncompete is no longer enforceable.
(Model language for this notice is available in the rule. Once the rule is published in the Federal Register, we will try to post a link to the model notice in our show notes. If we fail, you can find the notice later, when it is codified, at 16 CFR § 910.2(b)(4)).
So Jordan would receive notice from AIR that his noncompete agreement with them is unenforceable, and he could continue working for Washington Wizard, safe from any fear that AIR could successfully sue him for breaching the AIR-Jordan noncompete.
In fact, if AIR attempted to enforce the noncompete against Jordan after the ban’s effective date, Jordan could sue AIR.
The commission could even enter the fray in support of Jordan and to stop or punish AIR. The commission has authority to take administrative actions against parties that violate its rules. As a party seeking to enforce a noncompete agreement voided by the commissions rule banning noncompetes, AIR could expect to receive a cease and desist order from the commission requiring it to stop seeking to enforce its voided noncompete agreement with Jordan.
The commission could also impose penalties, like fines, upon AIR for its noncompliance. The amount of these fines could be quite large if the commission believed that they were necessary to deter future attempts to enforce voided noncompete agreements.
Example Conclusion
OK, so, in summary, here’s the difference between demanding relief before the ban’s effective date and after the effective date.
If AIR seeks to enforce the agreement before the commission’s rule banning noncompete agreements becomes effective sometime around September this year, then it could win a judgment ordering Jordan to pay damages for breaching the AIR-Jordan noncompete. It could also secure an injunction ordering Jordan to stop working for Washington Wizard.
By contrast, if AIR files a breach of contract claim against Jordan after the commission’s noncompete ban goes into effect, AIR will likely lose its case, Jordan will likely keep his new job, and AIR will likely be ordered to pay damages to Jordan for seeking to enforce a voided agreement. Additionally, AIR would be open to an agency action by the commission requiring it to pay administrative fines.
Seems like a simple legal dichotomy: rights and obligations to a noncompete before the ban’s effective date and after the ban’s effective date. But there’s a twist, and it’s senior executives.
Twist: Senior Executive
What if Jordan was a “senior executive”? Remember, the commission’s noncompete ban creates a carveout for noncompete agreements entered into with senior executives before the ban’s effective date.
A senior executive is a worker who: (a) in the preceding year, received at least $151,164 in total annual compensation; and (b) at the time they made a noncompete agreement with an employer, was in a policy-making position with that employer, meaning that they were the employer’s president or CEO or equivalent officer or position with final authority to make policy decisions that control significant aspects of the employer’s business or common enterprise. Individuals who don’t meet both the income threshold and satisfy the policy-making qualification are not senior executives.
Individuals whose authority to make final decisions are limited to advertising decisions and individuals who do not have policy-making authority over a common enterprise, even if that person has policy-making authority over a subsidiary or affiliate of that common enterprise, are also not “senior executives.” A principal broker who has policy-making authority over their franchise, for instance, cannot qualify as a “senior executive” potentially excluded from the noncompete ban, unless that principal broker also has policy-making authority over the corporate office, the full common enterprise.
If Jordan received at least $151,164 in total annual compensation the year before he entered into the AIR-Jordan noncompete, and if he had final authority to make policy decisions that controlled significant aspects of AIR’s business at the time he entered into the noncompete agreement with AIR, then noncompete agreement he signed with AIR would be excluded from the ban. It would remain valid after the ban’s effective date, and AIR could enforce it against him as it could before the ban’s effective date.
Importantly, however, if instead of agreeing to the noncompete before the ban went into effect, Jordan agreed to it after the ban went into effect, AIR would not be able to enforce its provisions against Jordan. The agreement would be void from the start, just like any other noncompete purportedly entered into after the ban’s effective date. The senior executive exception to the commission’s noncompete ban only applies to noncompete agreements entered into with senior executives before the ban goes into effect.
We’ve been talking about noncompetes entered into before the noncompete ban’s effective date. Now we turn our attention to noncompetes entered into after the noncompete ban’s effective date—they also have a twist.
Twist: Bona Fide Sale
Like noncompete agreements entered into before the noncompete ban’s effective date, noncompete agreements entered into after the ban effective date are void ab initio—void from the start. They are unenforceable. Anyone who attempts to enforce a noncompete with a worker made after the noncompete ban’s effective date, opens themselves to the same kind of civil and administrative liability that AIR opened itself to when it sought to enforce the AIR-Jordan noncompete.
Come September, or whenever later date the Federal Trade Commission’s noncompete ban becomes effective, it will be illegal to enter into or attempt to enter into a noncompete agreement with a worker.
The only exception is for noncompete agreements entered into as part of a bona fide sale of a business. Those noncompete agreements, even if entered into after the noncompete ban’s effective date, will remain valid and just as enforceable as they would have been if the commission never finalized a rule banning noncompetes.
Of course the courts could blow the FTC’s rule to smithereens or at least beat it back with a stick.
Court Challenges
In the focus piece we released last year, we surveyed the available legal authority that could be made available to buttress the FTC’s substantive rulemaking and speculated on potential objections or counter arguments. Now that plaintiffs have filed federal claims seeking to block the FTC’s noncompete ban and have it declared unlawful, we can happily confirm that we correctly anticipated those legal arguments and refer you to our focus piece we released last year on noncompete agreements released last year for an analysis and evaluation of the legal arguments raised in those cases.
There are at least three pending cases challenging the FTC’s noncompete ban:
· U.S. Chamber of Commerce v. FTC (E.D. Tex.).
· Ryan FTC (N.D. Tex.)
· ATS Tree Services v. FTC (E.D. Penn.).
The plaintiffs in all three cases generally demand preliminary and permanent injunctions to stop the immediate and ongoing application of the noncompete ban.
They are also uniformly requesting declaratory judgments to establish the illegality of the FTC's actions. These requests aim to preserve the status quo and prevent the enforcement of a rule they argue is beyond the FTC’s authority and that irreparably harmful to their interests.
Both the Chamber case and the Ryan case are within the U.S. Fifth Circuit, the most conservative federal circuit. The alignment of both the Ryan and U.S. Chamber of Commerce cases within the Fifth Circuit enhances their prospects for a sympathetic hearing regarding arguments against federal regulatory overreach and for the protection of business autonomy and state-regulated matters. This circuit's history of rulings that favor limiting federal authority in deference to states or private enterprise suggests a strong potential for preliminary injunctions being granted to halt the FTC's rule pending a full trial on the merits.
Whether the injunction that issues will only block implementation of the FTC rule as to the plaintiffs involved in the case or block implementation of the rule nationwide is a separate issue.
Historically, the Eastern District of Texas has not shied away from issuing nationwide injunctions, especially in cases involving intellectual property and patent law, where the district court has gained a reputation for being plaintiff-friendly. This enthusiasm extends to cases where broad regulatory impacts or significant national policy issues are at stake, aligning with the court's willingness to address issues with sweeping economic impacts.
The Northern District of Texas has also been involved in issuing nationwide injunctions, particularly in politically charged cases such as those involving healthcare and immigration policies. The court has demonstrated a readiness to issue such injunctions when it believes federal actions overstep legal bounds or when substantial nationwide impacts justify a broader judicial remedy.
Judges in both districts have demonstrated a willingness to engage with nationwide injunctions when significant policy issues are at stake, suggesting a pragmatic approach to the scope of injunctive relief based on the specifics of the case rather than a blanket hesitation or enthusiasm. In cases like those challenging the FTC’s rule on non-compete agreements, given the broad and uniform impact of the rule, judges in these districts might be more inclined to consider nationwide injunctions to prevent inconsistent enforcement and address the rule’s universal applicability.
Their bosses, though, the judges that sit on the U.S. Fifth Circuit Court of Appeals, have a mixed record on nationwide injunctions, sometimes upholding them and other times expressing skepticism about their breadth. The Fifth Circuit’s decisions are often influenced by a preference for limited federal intervention, a factor that could favor maintaining some form of injunction against a federal agency perceived to be overreaching its authority. A more probable outcome given the circuit's nature might be to narrow the scope of the injunction.
The Fifth Circuit could decide that a nationwide injunction is overly broad and instead issue a more limited injunction that perhaps only applies to the plaintiffs or within the circuit’s jurisdiction. This would prevent the rule from taking effect for the plaintiffs or within the Fifth Circuit while still allowing the legal process to continue.
But the Fifth Circuit would likely stay its own order to allow the parties to appeal to the U.S. Supreme Court.
Nationwide injunctions have been a topic of significant legal and political debate. The Supreme Court has not definitively ruled on the limits of such injunctions, though it has expressed interest in addressing this issue in various concurring and dissenting opinions. Conservative judges, in particular, have shown skepticism toward nationwide injunctions, favoring more limited or geographically confined rulings unless a compelling rationale for a broader scope is presented.
Justice Clarence Thomas has been particularly vocal, questioning the legal basis for lower courts to issue nationwide injunctions. In a concurring opinion in the case of Trump v. Hawaii (2018), Justice Thomas argued that nationwide injunctions “take a toll on the federal court system, preventing legal questions from percolating through the federal courts, encouraging forum shopping, and making every case a national emergency for the courts and the Executive Branch.”
Justice Neil Gorsuch also has indicated concerns about the broad scope of nationwide injunctions, suggesting that such injunctions may stretch judicial authority too far, and at one point describing them as an “epidemic.”
Justice Samuel Alito has also shown skepticism toward the sweeping nature of such injunctions.
While individual justices have expressed skepticism and concern, the Supreme Court has not yet issued a definitive ruling that directly addresses the propriety limits of nationwide injunctions. This leaves some uncertainty about how the Court would rule if directly confronted with the issue.
Given the current composition of the Supreme Court and the conservative leanings of several justices, there is speculation that the Court might be receptive to arguments limiting the scope of nationwide injunctions if and when such a case comes before it.
But the Supreme Court and appellate courts have been increasingly skeptical of broad regulatory overreach by federal agencies. This trend could favor the plaintiffs, who seek to block the agency’s rule and have it declared unlawful.
The Supreme Court's interest in these cases will likely hinge on their implications for administrative law and federalism. Given the current Court’s interest in curbing what it sees as excesses by federal agencies, there is a notable chance that the Court could rule against the FTC.
The prospect of Supreme Court review adds a significant dimension to these cases, not only in terms of legal strategy but also in shaping the broader legal landscape concerning agency rulemaking authority. The Supreme Court's decision could fundamentally affect the balance of power between federal agencies and the states, set important precedents regarding the non-delegation doctrine, and clarify the scope of judicial deference to agency interpretations of statutory authority. Given the substantial implications for administrative law and interstate regulatory frameworks, the Supreme Court’s review of the FTC’s authority to issue substantive rulemakings to prohibit unfair methods of competition holds the potential to become a landmark decisions in American jurisprudence.
But more important for the half million Hawaii employers and workers who are parties to a noncompete agreement, the courts seem poised and primed to strike down the FTC’s rule banning noncompete agreements. They also seem set to issue a nationwide injunction to halt the ban’s implementation until a final judgment enters on whether the FTC’s authority to issue the noncompete ban.
But nothing is guaranteed. Everyone who is a party to a noncompete agreement, should pay close attention these next few months. If a nationwide injunction does not issue, approximately half-a-million Hawaii noncompete agreements will be voided in four months.
Conclusion
And that’s our episode. Thank you for listening. If you like our podcast, please remember to like and subscribe.
We’re off next month so that we may help our members prepare for some scheduled practice changes. Please join us again the first Wednesday in July when we release our next episode with a fresh Real Data Report and new focus piece.
Mahalo. A hui ho.
