FTC Doubles Down Against Long Odds on Noncompete Rule

After two federal courts rebuked the Federal Trade Commission’s ambitious attempt to ban noncompete agreements nationwide, the agency is now turning to a circuit court in hopes of salvaging its Noncompete Rule. The stakes are high: the FTC’s rulemaking authority, the definition of unfair methods of competition, approximately thirty million employment contracts, and the legal framework of forty-six states all hang in the balance.

We first examined the Rule and its potential implications in a series of blogs and articles, starting with this report on the proposal and the controversy it sparked in January 2023. Fifteen months later, a divided Commission issued the Rule, despite strong dissent from two commissioners who questioned its legality and prudence.

Almost immediately, companies and trade associations challenged the Rule in three federal courts. Two judges issued preliminary injunctions against enforcement—first in Ryan LLC in Texas[1], and then in Properties of the Villages (POV) in Florida[2]. The Ryan court later granted summary judgment, striking down the Rule entirely and issuing a permanent injunction. Meanwhile, a Pennsylvania court declined to issue a third injunction, ruling that compliance costs did not constitute irreparable harm[3].

With the FTC now appealing its losses, the future of the Rule remains uncertain. Its controversial introduction, fraught trajectory, and swift setbacks reveal the steep challenges the agency faces—and provide a glimmer of hope for the companies it aimed to regulate.

CONTINUE READING…