| The Federal Trade Commission (FTC) hasn’t responded as of Sept. 23 to a federal judge’s late August ruling that blocked the FTC’s ban on most non-competes. But that doesn’t mean the fight is over. Indeed, one law firm believes the government’s cause could well prevail. The rule “exceeds the FTC’s statutory authority,” “is patently unconstitutional,” and “is arbitrary and capricious,” U.S. District Judge Ada Brown wrote in her opinion. The FTC responded by saying it is considering an appeal, and pointed out that “today’s decision does not prevent the FTC from addressing non-competes through case-by-case enforcement actions.” In addition, a federal court in Pennsylvania had declared the FTC’s rule was legal. Given the differences, a higher court likely will be asked to decide. For employers, the biggest impact of the Texas judge’s decision is that they don’t have to notify employees that the FTC’s rule would take effect on Sept. 4. Business groups have been protesting the FTC’s non-compete ban ever since the final rule was issued in April. The rule prohibits employee non-compete agreements with limited exceptions, including non-competes entered into as part of the sale of a business as well as existing non-competes entered into by senior executives who earn more than $151,164 a year. (New non-competes with senior executives would be barred.) In addition, the ban doesn’t apply to non-competes between businesses. News reports suggest the FTC’s main target was non-competes involving workers like hairdressers, who often are required to sign non-competes as a condition of employment. The FTC estimates 18% of all U.S. workers are covered by non-competes, and in many cases those non-competes are keeping them from making more money and/or starting their own businesses. Despite the FTC’s setback, the agency “ultimately may win the war on non-competes,” Clifford Atlas and Erik Winton of the Jackson Lewis law firm wrote. “In fact, by attempting to ban non-competes so broadly, the FTC effectively brought the issue into the public consciousness. Although federal and state legislation likely will affect the use of non-compete agreements, future limitations may not be as draconian as the Final Rule’s total, retroactive ban.” The attorneys also noted that opposition to non-competes enjoys rare bipartisan support in Congress. Meanwhile, several state legislatures have been considering bills that would have their states join California, Minnesota, Oklahoma, and North Dakota in banning non-competes. |
