The Federal Trade Commission's noncompete ban is in flux amid several divergent court rulings, according to an article by law firm Faegre Drinker Biddle & Reath published Aug. 14 in JDSupra.
Three district court judge rulings have challenged the FTC's plan to ban noncompetes for most workers.
A Pennsylvania federal court judge denied the motion for a preliminary injunction pushing the effective date of the agency's noncompete ban. The judge ruled that the ban fell within the FTC's rulemaking authority, after a Texas federal court held that the ban exceeded its statutory authority, setting up a split among federal courts.
In Florida, retirement community Properties of the Villages sued, alleging it invests heavily in training sales associates because their relationships with residents of the community are central to its business model. The sales associates sign noncompetes that stipulate that for 24 months after leaving the company, they will not compete to sell homes within the Villages community.
Lawyers said that under the “major questions” doctrine, Congress cannot delegate to executive agencies issues of major political or economic significance.
U.S. District Judge Timothy Corrigan granted a preliminary injunction in the case, prohibiting enforcement of the rule just for the retirement community until the case is resolved.
This will not stop the FTC's rule from going into effect Sept. 4, however.
"Adding to the confusion is the likelihood of a lengthy appeals process," the Faegre Drinker article added, saying the Supreme Court's recent overturning of the Chevron ruling in Loper Bright Enterprises v. Raimondo could also mean they "may apply Loper Bright's new test to the FTC's adoption of the rule."
The FTC's rule makes it illegal to include most noncompetes in employment contracts unless the employer is a nonprofit, and requires companies with noncompetes to inform workers that they are void.
With these divergent rulings expected to emerge, many are predicting this issue to work its way to the Supreme Court, according to an article by law firm Kohrman Jackson & Krantz published Aug. 13 in JDSupra.