Injunction Junction: Judicial Challenges to New Employment Rules

April 2024 saw a whirlwind of activity on the employment front as executive federal agencies issued a wave of new rules. On April 15, 2024, Equal Employment Opportunity Commission (“EEOC”) announced its final rule implementing the Pregnant Workers Fairness Act, with that rule scheduled to take effect on June 18, 2024. On April 23, 2024, the Federal Trade Commission (“FTC”) issued its final rule banning nearly all employment-based covenants not to compete, both prospectively and retroactively, with the rule scheduled to take effect in early September. And on April 25, 2024, the Department of Labor (“DOL”) published a new rule implementing two phases of substantial increases to the salary level required for employees to qualify for many white-collar exemptions to the Fair Labor Standards Act. The first phase of salary increases is scheduled to take effect on July 1, 2024.

While these rules have potentially far-reaching implications for employers, they won’t take effect without a fight. Almost immediately upon their announcement, both private litigants and state attorneys general lined up at the courthouse with applications for injunctions in hand, urging courts to stop the new rules before they started. This article reviews the various legal challenges to the new rules and their journey through the judicial system to date.

Ryan, LLC v. Federal Trade Commission: The Challenge to the Non-Compete Ban

Immediately after the FTC’s April 23 announcement of its new rule, United States Chamber of Commerce and Ryan, LLC, a Texas-based tax firm, filed suit in federal Texas courts to enjoin the rule. The two challenges have been consolidated under Ryan’s caption and are proceeding in the United States District Court for the Northern District of Texas.

The challenges to the FTC’s non-compete ban are a study in the concept of checks and balances: the challengers ask the court to find that an executive agency overstepped its authority by usurping a legislative function. Ryan and the Chamber of Commerce claim that the FTC lacks authority to make substantive rules declaring common business practices categorically unlawful. In support of this conclusion, they cite both the limitations in the text of the Federal Trade Commission Act and the recently articulated “major questions doctrine.” The Supreme Court of the United States uses the major questions doctrine to check the rulemaking by federal agencies when the rules implicate issues of vast economic and political significance, and when Congress did not clearly delegate authority to the agency over the issue. Ryan and the Chamber of Commerce also criticize the non-compete ban for being unlawfully retroactive and for arbitrarily failing to account for the many pro-competitive benefits of non-competes.

The FTC filed its opposition to the application for injunction on May 29, 2024, arguing that Congress has expressly delegated authority to the FTC to make rules about unfair business practices, and that the major question doctrine is inapplicable because regulating trade practices is directly within the FTC’s expertise. The FTC defended the principled nature of its ban, citing both its exhaustive study of non-competes and its thorough examination of economic justifications for banning them.

The challengers filed their reply briefs on June 12, 2024. The court declined to hold a hearing and announced it would decide the matter on the papers before it. The court has committed to render its decision by July 3, 2024.

Plano Chamber of Commerce v. Su and State of Texas v. U.S. Department of Labor: The Challenges to the New Overtime Rule

Texas federal courts are also the battle ground for the challenges to the DOL’s new rule, which would substantially increase the salary levels for employees to qualify for certain white-collar exemptions. In other words, the rule would make it more expensive for employers to classify workers as exempt and avoid paying overtime.

The Plano Chamber of Commerce and State of Texas each applied for an injunction in the United States District Court for the Eastern District of Texas. Notably, this is the same court that enjoined a similar salary-hike rule issued by the DOL in 2016. In that case, the court found that the DOL exceeded its authority by putting too much emphasis on salary levels, versus the nature of employees’ duties, in determining statutory exemptions. Perhaps unsurprisingly, the challenge to the most recently announced rule raises similar arguments. The Plano Chamber of Commerce case has not been particularly active, and for practice purposes, it appears that the State of Texas lawsuit will be the vehicle for a substantive decision.

Like the challenge to the FTC’s non-compete ban, the challenge to the DOL’s salary level rule is also on an accelerated briefing schedule. The DOL filed its opposition to the motion for injunction on June 17, 2024. The State has until Friday, June 21, 2024, to reply, and the court will hold a hearing on Monday, June 24, 2024. Given that the rule is set to take effect on July 1, 2024, it seems likely that the court will rule on the application for injunction shortly after the hearing.

Tennessee v. EEOC and Louisiana v. EEOC: Challenges to the Pregnant Workers Fairness Act Final Rule

Just as with the FTC and DOL’s new rules, the EEOC’s broad regulations protecting pregnant workers have also been subject to multiple challenges. But the challenges to the EEOC’s final rule differ from the others in key ways. First, the challenges do not seek to enjoin the entire rule from going into effect. Instead, they target only a single aspect: the requirement that employers accommodate pregnant workers seeking abortions. Second, the challenges have not been consolidated and have proceeded before different district courts. Third, and most significantly, the challenges have already been resolved with opposite results.

On April 25, 2024, 17 states’ attorneys general, led by Tennessee, filed an application for injunction l in the United States District Court for the Eastern District of Arkansas. The challenging states argued that the new rule gave them the impossible choice of either accommodating illegal “elective abortions” or violating the EEOC’s rule by refusing to accommodate illegal abortions.

The court made short work of this filing. On June 14, 2024, it denied the injunction and dismissed the case. The cornerstone of the court’s decision was its determination that the states lacked standing to bring the lawsuit because they could not show a concrete, particularized injury that was actual or imminent. The court reasoned that the states were not in any imminent danger of an enforcement action by the EEOC because the EEOC cannot sue state employers. The court was also unimpressed by the Catch-22 the states feared, finding it was too speculative a scenario to merit injunctive relief.

But on June 17, 2024, a federal judge in the United States District Court for the Western District of Louisiana reached the opposite conclusion, holding in the consolidated cases of Louisiana v. EEOC and United States Conference of Catholic Bishops et. al. v. EEOC that employers in Louisiana and Mississippi could not be compelled to provide abortion-related accommodations to pregnant workers. The court enjoined the EEOC from initiating any investigation into claims that a covered employer failed to accommodate an elective abortion or from issuing any notice of right to sue letters with respect to the same. Notably, the District of Louisiana accepted that states had standing to sue the EEOC because the new rule interfered with the states’ ability to enforce their laws and implement their own public policies.

Given the judicial split, the issues of both state standing and the ultimate fate of the abortion-accommodation requirement in the EEOC’s rule are likely headed for the appellate process.

Conclusion

The flurry of rulemaking activity in the last few months has led to a reactive onslaught of judicial activity, with states and private citizens challenging the ability of executive agencies to issue and enforce far-reaching rules that, in some cases, would override state laws. The next few weeks should see the initial spate of decisions from district courts determining whether the rules will take effect as planned, but there is likely a long appellate road ahead to test the boundaries of executive power.