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This past Tuesday, US Texas District Court Judge Ada Brown expanded her local injunction  against the Federal Trade Commission (FTC) rule banning non-compete agreements. It now applies nationwide. The rule, which was set to take effect September 4^th, would have impacted roughly 30 million American workers bound by non-compete agreements. Judge Brown initially issued an injunction in July which only affected the plaintiffs.

Judge Brown, in a rather scathing order wrote, “the Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action”.  She also concluded the rule would cause irreparable harm.

The ruling received plaudits from the US Chamber of Commerce; however, the saga is likely to continue. The FTC issued a statement that they are “seriously considering a potential appeal.” In the meantime, the FTC says the decision will not prevent it from dealing with non-compete agreements “through case-by-case enforcement actions.” The Biden-Harris Administration continues to support the non-compete ban.

As we previously reported, similar cases have been filed in federal courts in Florida and Pennsylvania. On August 14, the Florida court blocked the FTC rule. However, in July, the District Court of Eastern Pennsylvania ruled the other way. Judge Hodge declared the federal law grants the “FTC with the authority to promulgate rules prohibiting unfair methods of competition.” She also found the rule would not cause the plaintiff irreparable harm. The case is likely bound for the US Supreme Court.

Recent US Supreme Court case, Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce (overturning the Chevron deference decision), will likely play a key role in any appeal as Loper allows the courts more discretion to overrule agency rules. In other words, the Supreme Court has declared that overruling a federal agency’s rules (like the FTC rules) has a lower threshold than in the past.

For now, employers can take a sigh of relief as the outright ban on non-compete agreements will not take effect; however, until these cases are finally resolved, the FTC promises to use these rules on a case-by-case basis. Employers that rely on non-compete agreements should keep up to date with court rulings and appeals which may affect the rule.

Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560