For now, it’s 'business as usual' for PE firms, after a court ruled the FTC exceeded its authority in proposing a blanket ban on non-competes. But regulatory scrutiny is likely far from over.
The Federal Trade Commission’s proposed blanket ban on non-competes was thrown out by a federal judge on Tuesday. But the FTC may attempt to take the issue to higher courts, and, either way, regulatory scrutiny of non-competes is far from over, say legal professionals.
The ruling by the US District Court for the Northern District of Texas blocks the proposed ban from taking effect September 4, as originally scheduled. Judge Ada Brown, saying the ban was “arbitrary and capricious,” ruled that the FTC does not have the authority to ban practices to restrict competition that it deems unfair, including the non-compete rule, which would have prohibited companies from restricting their employees’ ability to join their employers’ rivals or launch competing businesses.
A judge had temporarily blocked the ban in July while she considered a bid by the US Chamber of Commerce and tax service firm Ryan to strike it down entirely.
In striking down the ban, the district court said that even if the FTC had the power to adopt the rule, the agency had not justified banning virtually all non-compete agreements instead of targeting “specific, harmful non-competes.”
The FTC still has options. It could make a motion for reconsideration in the district court, explained Allan Bloom, a partner at Proskauer...
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