Many employers breathed a sigh of relief last week after a federal judge in Texas struck down the Federal Trade Commission’s ban on noncompete agreements.
Employers that rely on these agreements have been in a state of limbo while the case was pending, and now that the rule has been enjoined, it has raised a lot of questions for employers. Here are seven of the most common questions:
1. Why did the court strike down the rule?
The court struck down the rule on two bases: (1) the FTC exceeded its statutory authority when it issued the ban on noncompetes; and (2) the rule was “arbitrary and capricious,” meaning that it was “unreasonably overbroad without a reasonable explanation” for the rule, and the FTC did not adequately explore less-disruptive alternatives to a near-total ban.
2. How does a Texas court have the power to issue a nationwide ban on the FTC rule?
The court struck down the rule using the Administrative Procedure Act, and the Fifth Circuit has held that remedies under that statute are nationwide in effect.
3. Is this the end of the litigation over the rule?
The FTC will likely appeal to the Fifth Circuit, but that court is probably going to be a hostile audience. Based on recent decisions out of the U.S. Supreme Court, the FTC probably won’t find a warm reception there either. The appeals process can take years, and a future, more conservative FTC might pull the plug on the efforts to save the noncompete rule. Basically, the chances of survival for this rule...
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