Federal Judge Strikes Down Federal Noncompete Ban

Last Updated: Aug 22, 2024

The federal ban on most noncompete agreements will not take effect next month as scheduled. Earlier this week a federal judge in Texas struck down the new rule after finding that the Federal Trade Commission (FTC) lacked the authority to promulgate such a broad rule. The judge, in addition to stating that the FTC lacked authority for its action, also stated that the FTC failed to present sufficient supporting evidence as to why a nationwide ban was appropriate versus taking a case-by-case approach to such restrictions.?

The rule would have barred new noncompete agreements for all workers and would have allowed existing noncompete agreements only for senior executives. Instead, noncompete agreements will continue to be permitted unless restricted by state-enacted provisions.

Speaking of state-enacted provisions, Pennsylvania enacted Act 74 earlier this year. PAMED supported this new law that will limit noncompete agreements for physicians to a maximum duration of one year. In addition to physicians, Act 74 will also apply to certified registered nurse anesthetists, certified registered nurse practitioners and physician assistants. Act 74 takes effect January 1, 2025.

The FTC stated that it will review the judge’s ruling before deciding whether to pursue an appeal, craft a revised rule, or abandon the effort to institute a broad ban of noncompete agreements. Any appeal would likely eventually end up in the Supreme Court. Recent decisions have shown that the current Supreme Court disfavors actions by administrative agencies, such as the FTC, akin to making substantive law absent an express grant of such authority by Congress.

You can read the court opinion here.?