The Federal Trade Commission’s proposed ban on noncompete agreements, initially set to take effect on September 4, now faces uncertainty following a preliminary court ruling. The FTC’s move has been both praised and criticized by employees and managers across radio.
Judge Ada Brown of the Northern District of Texas issued a preliminary injunction against the rule, responding to a lawsuit from Ryan LLC, a Dallas-based tax services firm. The court supported the plaintiff’s argument that the FTC overstepped its authority with the proposed ban.
The ruling emphasizes that the FTC’s powers do not extend to creating substantive rules regarding unfair competition as defined by the FTC Act.
Under the proposed regulations, most existing noncompete clauses will be unenforceable, excluding senior executives who make over $151,164 and have policy-making roles. However, employers are barred from forming new noncompetes with these executives. Compliance is simplified as employers are no longer required to rescind existing noncompetes formally but must inform affected employees that their noncompete agreements will no longer be enforced.
This decision aligns with recent shifts in legal standards, including the US Supreme Court’s overruling of the Chevron deference, which previously guided courts to defer to federal agencies’ statutory interpretations.
The injunction currently applies only to Ryan LLC and several intervening business associations, not nationwide.
The case’s outcome could lead to further judicial examination, especially as similar challenges are presented in other courts, such as the Eastern District of Pennsylvania with ATS Tree Services, LLC v. Federal Trade Commission. The ongoing legal debates highlight significant discrepancies in the interpretation of the FTC’s regulatory scope and could eventually necessitate Supreme Court intervention.
