Judge Hits Pause on FTC’s Non-Compete Ban
Judge says Congress did not authorize the FTC to ban non-compete agreements.
WASHINGTON, July 5, 2024 – A federal judge in Texas on Wednesday barred the Federal Trade Commission from enforcing a ban on non-compete clauses in employment agreements that reportedly cover 30 million American workers.
U.S. District Judge Ada Brown said the FTC has not received statutory authority from Congress to adopt such a ban as an unfair method of competition under Section 6(g) of the Federal Trade Commission Act.
“Section 6(g) is indeed a ‘housekeeping statute,’ authorizing what the [Administrative Procedure Act] terms ‘rules of agency organization procedure or practice’ as opposed to ‘substantive rules,’” Brown said.
She added that because Section 6(g) lacked a penalty provision, it also lacked substantive force.
The FTC's rules were to take effect Sept. 4, immediately invalidating the vast majority of non-competes nationwide. Non-competes that involved senior executives making at least $151,163 annually were exempt but could not be renewed under the rules.
Under current federal law, the FTC does not have authority over common carriers. The Federal Communications Commission’s new net neutrality rules - which have not taken effect - classified broadband ISPs as common carriers, taking away FTC jurisdiction that applied when broadband ISPs were classified as information service providers in communications law.
The FCC adopted the net neutrality rules on April 25. Five days later, the FTC and the FCC reached an agreement saying that despite the net neutrality rules, the FTC would “continue to have jurisdiction over non-common carrier activities carried out by common carriers.”
But the FTC-FCC agreement is on hold until after the Net Neutrality rules take effect on July 22. ISP trade associations have asked the U.S. Court of Appeals for the Sixth Circuit to stay the rules by July 15.
In her order, Brown for now limited the scope to plaintiff Ryan, LLC and plaintiff-intervenors the Chamber of Commerce of the United States of America, the Business Roundtable, the Texas Association of Business, and the Longview Chamber of Commerce. The individual members of the plaintiff-intervenors were not covered in Brown’s order.
Brown handed down a preliminary injunction and stayed the Sept. 4 effective date. Brown said she would issue a new ruling on the merits of the case before Aug. 30.
But judging by her analysis so far, Brown appeared ready to block the FTC rule after concluding the plaintiffs would suffer irreparable harm and would likely prevail on the merits.
“The role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do,” Brown said. “The Court finds there is a substantial likelihood the rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation.”
