FOLLOW US

"The FTC's rule banning the practice levels the playing field for employees and employers alike, and opens the door for thousands of small businesses," Nicholson said. "This rule makes the Texas economy stronger, and we were glad to partner with Public Rights Project and local officials across the state to urge the court to uphold it." The FTC voted 3-2 along party lines to implement the new rule on April 23, deeming the use of noncompete clauses in employment contracts an unfair method of competition and thus unenforceable. Set to take effect in September, the rule bars noncompetes moving forward, and requires employers to tell current and former employees that existing agreements are no longer enforceable. It includes a carveout for existing noncompetes covering senior executives, but the use of the clauses for those employees will be banned going forward. Ryan LLC was the first to file a challenge of the rule, in the Northern District of Texas, the same day as the FTC's vote. The U.S. Chamber of Commerce intervened in the case last month after a court paused the Chamber's similar case and urged it to join Ryan's suit, because it was filed a day earlier.

FTC Noncompete Clauses

Nearly a dozen national and international trade associations threw their support behind the challenge in a joint amicus brief last month, as several other groups also filed individual briefs supporting the bid for a stay and a preliminary injunction. The suit contends the FTC needs express congressional approval to regulate FTC noncompete clauses and cannot rely on its general authority against unfair methods of competition. The suit also argues that the retroactive effect raises constitutional concerns and that a categorical ban reflects an "arbitrary and capricious" exercise of the agency's powers since noncompetes need to be analyzed individually to see if they're unfair. A group of administrative law scholars pushed back against the claims in an amicus brief on Friday, saying the FTC has a clear congressional mandate to promulgate unfair competition rules and said the "major questions doctrine" applies when there's a "mismatch" between an agency's action and its assigned mission. "No such mismatch plausibly exists here: Congress has vested the commission with broad powers over unfair methods of competition, and no government agency could reasonably be expected to have greater expertise than the commission concerning non-compete agreements or unfair methods of competition generally," the scholars said.