The Federal Trade Commission's ban on noncompete clauses is facing a preliminary injunction from a federal court in Texas.
The preliminary injunction prevents the ban from taking effect Sept. 4 while the court considers if the FTC has authority to ban noncompetes. U.S. District Judge Ada Brown sided with the U.S. Chamber of Commerce and tax preparation company Ryan LLC, both of which argued that the FTC lacks authority.
Ms. Brown said the suit its "likely to succeed on the merits the FTC lacks statutory authority to promulgate the noncompete rule."
The FTC voted 3-2 to issue the rule in April, which makes it illegal to include noncompetes in employment contracts unless the employer is a nonprofit, requires companies with noncompetes to inform workers that they are void.
According to court documents obtained by Becker's, the court will rule on the merits of the challenge by Aug. 30, but a review so far indicated the ban will be struck down.
"The FTC stands by our clear authority, supported by statute and precedent, to issue this rule," Douglas Farrar, director of the FTC's office of public affairs, said in a statement provided to Becker's. "We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans' economic liberty."
ASCA, which represents ASCs across the U.S., is opposed to the ban. The association submitted a comment to the FTC opposing the final rule, stating "surgery centers and other tax-paying healthcare providers would be subject to restrictions that tax-exempt systems would not."
Many physicians are excited about the prospect of a noncompete ban. The American Medical Association estimates that between 35% and 45% of physicians in the U.S. are bound by noncompete clauses.
"Banning noncompete clauses for physicians can significantly enhance community benefit," Ernest Braxton, MD, chief of neurosurgery at Vail-Summit Orthopaedics and Neurosurgery in Vail, Colo., told Becker's. "Such clauses restrict doctors from practicing within a certain radius of their former workplace for a specified period, hindering patients' access to healthcare services. By eliminating these constraints, physicians can freely relocate to areas with underserved populations, improving medical access and quality of care."