The Federal Trade Commission (FTC) is appealing a Texas federal judge’s decision to block its ban on employment noncompete agreements The appeal will be heard by the Fifth Circuit Court of Appeals.
U.S. District Judge Ada E. Brown of the Northern District of Texas granted summary judgment in favor of the U.S. Chamber of Commerce and tax company Ryan LLC, who are the plaintiffs in the case. In short, the judge said, among other things, that the FTC overreached in issuing the ban.
Judge Brown acknowledged that Congress vested the FTC with the power to prevent unfair methods of competition. However, she concluded that FTC does not have the authority to create “substantive rules regarding unfair methods of competition.” Basically, she said that the FTC only has the power to set procedural rules governing enforcement actions, not preventative regulations.
The judge also found that the rule is an arbitrary and capricious “categorical ban” that violates the Administrative Procedure Act due to its “one-size-fits-all approach with no end date.”
While a Pennsylvania federal judge had tentatively sided with the FTC in July — the plaintiff there has since dropped that challenge — a Florida federal court similarly tentatively ruled against the ban in August, issuing a limited, plaintiff-specific injunction. The FTC gave notice last month that it would appeal the Florida preliminary injunction at the Eleventh Circuit.
Judge Brown is the only judge to have reached a final conclusion on the ban.
The appeal sets the stage for an appellate court ruling which is likely the precursor to the case going up to the U.S. Supreme Court.
In the meantime, there is another case pending on appeal. That case is Properties of the Villages Inc. v. Federal Trade Commission, now on appeal to the Eleventh Circuit Court of Appeals. This case was originally brought in the Middle District of Florida.
Bottom line, the state of the law with non-compete agreements is status quo. That means that individual state law applies, so make sure you check your local law to find out how non-compete agreements are treated in your state.