Medical and Industry Groups Seek Court Intervention Against FTC Noncompete Ban

Trade organizations from the hospital, insurance and financial services sectors are actively challenging the Federal Trade Commission’s (FTC) proposed ban on noncompete agreements, highlighting a significant split within the judiciary over the regulator’s authority, according to Bloomberg.

The American Hospital Association and the Federation of American Hospitals, which collectively represent thousands of U.S. hospitals and health systems, submitted a brief on Monday to the U.S. District Court for the Northern District of Texas. This brief opposes the FTC’s rule, which aims to ban noncompete clauses in employment contracts.

In addition, the American Property Casualty Insurance Association also filed a brief in the same Texas court, urging a ruling against the FTC. Meanwhile, groups such as the American Investment Council and the Managed Funds Association have backed a separate challenge to the regulation by filing a brief on July 24 in the Middle District of Florida.

Per Bloomberg, many of these groups argue that the FTC does not possess the statutory authority to enforce such a rule. They contend that noncompete agreements are essential for protecting investments in employee training and maintaining the confidentiality of proprietary information.

The hospital associations further highlighted the unique challenges faced by their sector, noting that the majority of hospitals are nonprofits. They asserted that the FTC does not have the statutory power to apply the noncompete rule to nonprofit hospitals, potentially creating an “uneven playing field” in the healthcare labor market.

This concerted push from various industry sectors comes as courts across the United States are considering multiple lawsuits against the FTC’s rule. The regulation, if implemented, would largely prohibit businesses from using noncompete contracts that restrict an employee’s ability to change jobs.

Recently, Judge Kelley Brisbon Hodge of the Eastern District of Pennsylvania ruled in favor of the FTC’s authority to issue the noncompete rule, denying a challenger’s request for a preliminary injunction on July 23. In contrast, Texas Judge Ada Brown granted a preliminary injunction to a tax firm and the U.S. Chamber of Commerce, expressing skepticism about the FTC’s powers. Judge Brown indicated she would issue a final ruling by August 30, just before the FTC rule is set to take effect. Plaintiffs in the Texas case are also seeking a nationwide injunction.

The judge in Florida has yet to decide on a motion for a preliminary injunction filed by a real estate firm.

According to an FTC estimate, approximately 30 million Americans, or one in five workers, are currently bound by noncompete agreements.

Source: Bloomberg