Hey, Compliance Warriors and Bosses!
In a major blow to the Federal Trade Commission’s (FTC) efforts to limit the use of noncompete agreements, a Texas federal judge has struck down the agency’s ban on these contractual provisions.
On Tuesday, Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled that the FTC’s ban on noncompete agreements violates the Administrative Procedure Act and exceeds the agency’s statutory authority. This ruling applies nationwide, overturning the ban before it was set to take effect on September 4.
This is not the first time Judge Brown has ruled against the FTC on this issue. Last month, she had already issued a preliminary injunction blocking the noncompete ban, but only with respect to the plaintiffs and intervenors in the specific case before her, Ryan LLC v. Federal Trade Commission.
However, in her latest decision, Judge Brown went further, setting aside the regulation entirely. As she explained, the Administrative Procedure Act “does not contemplate party-specific relief” – meaning the ban could not be blocked for just the plaintiffs, but had to be struck down completely.
This ruling puts Judge Brown at odds with other federal judges who have sided with the FTC on the noncompete ban. In July, a Pennsylvania federal judge declined to block the regulation. And just last week, a Florida federal judge issued a more limited injunction, holding that the FTC likely exceeded its statutory authority in imposing the ban.
The FTC is likely to appeal Judge Brown’s decision, setting up the potential for a circuit split on this issue that could eventually reach the Supreme Court. For now, however, the nationwide injunction means the FTC’s noncompete ban will not be taking effect as planned next month.
This is a significant victory for businesses and employers who have long relied on noncompete agreements as a way to protect their valuable intellectual property and investment in employees. It remains to be seen whether the FTC will be able to salvage its attempted crackdown on these contractual provisions.
