FTC Noncompete Ban Stopped by Texas Federal Court, Allowed by Pennsylvania Federal Court
The U.S. District Court for the Northern District of Texas ordered that the Federal Trade Commission (“FTC”) rule prohibiting non-compete agreements nationwide “shall not be enforced or otherwise take effect.” [1]
Overall, it’s no surprise that the FTC rule was stopped by one of the numerous challenges filed to prevent the rule from taking effect, but the court waited until the last minute to prevent the rule, as it was set to take effect on September 4. The FTC rule, first issued in April, would have prohibited all noncompete agreements, including those in employment contracts.
However, not all challenges to the rule were successful: the U.S. District Court for the Eastern District of Pennsylvania ruled that the FTC likely does have the authority to make the rule when denying a preliminary injunction. [2] These opposing rulings set up a possible split in treatment of the rule by the Third Circuit of Appeals and the Fifth Circuit of Appeals, which include federal courts in Pennsylvania and Texas respectively.
Takeaways for Employers
Employers should remain wary of further action to prevent or limit the enforceability of noncompete agreements. The FTC is likely to appeal to the Fifth Circuit to attempt to enforce the rule, potentially furthering a split between circuits. Other agencies, such as the National Labor Relations Board "(“NLRB”), have stated that non-compete agreements violate other laws, like the National Labor Relations Act.[3] Employers must also comply with an existing patchwork of state laws, such as Illinois’ Freedom to Work Act.[4]
Gablin Law continues to monitor the situation to help employers navigate the complexities of non-compete agreements.
Footnotes
[1] Read the full opinion in Ryan, LLC v. Federal Trade Commission here
[2] Read the full opinion in ATS Tree Services, LLC v. FTC.
[3] Read the NLRB’s General Counsel’s full memo on noncompetes here
[4] Illinois Freedom to Work Act. 820 ILCS 90