Non-Compete Agreement Ban: What The Latest Court Ruling Means

A second federal district court has preliminarily enjoined enforcement of the FTC’s pending ban on non-compete agreements, finding that the rule exceeds the agency’s authority.

The ruling pushes the scorecard to 2-1 in favor of rulings that block the ban, but it applies only to the plaintiff that brought the suit and does not disturb the rule’s looming effective date as to most other employers.

The latest ruling was issued August 15 by a federal district court judge in Florida.

Another Court Challenge to Non-Compete Agreement Ban

The lawsuit was filed in June by Properties of the Villages, Inc., which is a real estate broker. All of its agents are subject to non-compete clauses, the court’s ruling says.

The complaint alleged four counts under the federal Administrative Procedure Act. Substantively, those counts asserted that:

• The FTC lacks substantive rulemaking authority over unfair methods of competition
• Even if the FTC has substantive rulemaking authority, the non-compete agreement ban exceeds the scope of that authority
• Even if the FTC has the authority to issue the non-compete agreement ban, it is impermissibly retroactive, and
• The ban violates the Commerce Clause, which gives Congress the power to regulate commerce among the states.

Near the start of July, the plaintiff filed a motion that asked the court to preliminarily enjoin enforcement of the non-compete agreement ban, which is scheduled to take effect September 4. Importantly, it sought relief only for itself and did not ask for a nationwide ban of the pending new rule.

Ruling Is Read From Bench

In an unusual move, the judge hearing the case decided to read his decision from the bench. He said he did so in the interest of timeliness and in light of the fact that the new rule is set to take effect in a matter of just a few weeks.

The judge said the questions presented by the motion are “important and close,” and he candidly disclosed that he is “somewhat comforted in knowing that my decision today is likely not to be the end of it.”

The court then went on to determine that the plaintiff is likely to prevail on its claim that the ban exceeds the FTC’s authority.

The rule presents what is known as a “major question,” the court said, which means that there must be clear congressional authorization for it.

This clear authorization is lacking in the relevant statutory language, the court ruled.

Other Requirements Were Met

The court also determined that if its request was denied, the plaintiff “[would] suffer actual and imminent harm that cannot be done through money damages.” On this point, it mentioned “compliance costs to change contracts” and business disruptions that would result from a need to comply with the rule while its validity is tested.

Finally, the court said the balance of equities and the public interest both weighed in favor of granting the requested relief.

The court granted the injunction, being very careful to note that it applies only to the plaintiff in this case and does not extend to nationwide application.

Ban on Non-Compete Agreements: Where Do Things Stand Now?

This is the third federal district court ruling addressing a request to preliminarily block enforcement of the FTC’s non-compete agreement ban.

In early July, a federal district court in Texas similarly concluded that the FTC lacked the authority to promulgate the rule while also similarly limiting the scope of its preliminary injunction to the plaintiffs in that litigation.

Later in the same month, a Pennsylvania federal district court reached the opposite conclusion and ruled that the agency in fact does have the power to set the new rule.

None of these rulings apply nationally, meaning that all other employers must be ready for the rule’s currently scheduled effective date.

The case to watch now is the one from Texas, in which the judge is expected to rule on the plaintiffs’ request for a nationwide ban on the rule by the end of this month. The stage is now set for the ban to be blocked nationally just days before its scheduled effective date.

Properties of the Villages, Inc. v. Federal Trade Commission, No. 5:24-cv-316-TJC-PRL (M.D. Fla. 8/15/24).