New England Biz Law Update
Earlier this month, the U.S. District Court for the Middle District of Florida issued a preliminary order finding that the Federal Trade Commission’s noncompete ban was unlawful. However, the ruling only applies to the plaintiff who brought the lawsuit.
This is the second court to issue an order against the FTC rule.
Back in July, the U.S. District Court for the Northern District of Texas barred enforcement of the rule, also in a preliminary order limited to the five plaintiffs involved that case. The Texas court said it would issue a final ruling before the September 4, 2024, effective date of the FTC rule.
Different explanations
While both courts reached the same result, they based their conclusions on different reasons.
The Texas court found that the FTC may only adopt regulations regarding “‘agency organization procedure or practice’ as opposed to ‘substantive rules.’”
On the other hand, the Florida court said that the FTC has some authority to institute substantive rules. However, it went on to find that this authority does not allow the FTC to make decisions relevant to “major questions” of policy. The court said that the FTC’s noncompete rule exceeds its authority by essentially making a decision on a major policy question without Congressional involvement.
Meanwhile, also in July, a U.S. District Court for the Eastern District of Pennsylvania found in the FTC’s favor on the rule, saying that the agency had the authority to issue it.
What the FTC rule requires
Whether any federal court will stop the FTC rule from being enforceable nationally before the approaching effective date is unclear.
If the rule goes into effect, employers will be required to inform both current and former employees that their noncompete agreements are no longer enforceable using their last known mailing address, email address or phone number. The notices must be sent by September 4.
