Dive Brief:
- A Texas federal judge on Wednesday granted a tax services firm’s motion for a preliminary injunction of the Federal Trade Commission’s nationwide ban on noncompete agreements in employment contracts and has stayed its effective date for the plaintiffs.
- Judge Ada Brown of the U.S. District Court for the Northern District of Texas held that FTC violated the Administrative Procedure Act and exceeded its statutory authority by issuing the ban, which she said has a “substantial likelihood” of being found arbitrary and capricious.
- Brown said the injunction is limited in scope to the plaintiffs and plaintiff-intervenors named in the suit; it is not a nationwide injunction. She added that the court would rule on the merits of the agency’s action on or before Aug. 30, 2024.
Dive Insight:
FTC voted along party lines to approve the ban in April, and several lawsuits against the agency followed. Aside from Ryan, the U.S. Chamber of Commerce also sued FTC shortly after it announced the ban, but a judge placed a hold on that suit last month because Ryan was the first filed.
Brown’s injunction is limited in scope, applying only to the entities named in the lawsuit, Fisher Phillips attorneys Jonathan Crook and Michael Elkon wrote in an article for the firm. But another suit in Pennsylvania challenging the noncompete ban is still pending and could result in a nationwide injunction at some future point, they added.
In the other case, ATS Tree Services v. Federal Trade Commission, the U.S. District Court for the Eastern District of Pennsylvania announced that it would issue a decision on whether to grant the employer’s motion for preliminary injunction by July 23.
In a July 11 court filing, the plaintiffs in Ryan motioned for the court to reconsider its decision not to impose a nationwide injunction on the noncompete ban. Brown denied that motion later the same day.
“The FTC stands by our clear authority, supported by statute and precedent, to issue this rule,” Douglas Farrar, director of the agency’s office of public affairs, said in an email. “We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty.”
For organizations not named in the the Ryan suit, FTC’s noncompete ban is set to take effect Sept. 4.
