On Friday afternoon, the Federal Trade Commission notified a federal judge in Texas who had previously entered a nationwide injunction against its sweeping noncompete ban that the agency would appeal her decision to the Fifth Circuit Court of Appeals.
The judge had previously ruled that Congress did not afford the FTC statutory authority to create substantive rules, like one that effectively bans most noncompetes. The court also concluded that the FTC’s rule banning most noncompetes was “arbitrary and capricious” because the FTC sought to adopt a one-size-fits-all approach without sufficiently considering reasonable alternatives. The net result was an overly broad rule that, without explanation, made unenforceable long-standing contractual agreements that courts had often recognized as lawful and beneficial to the public interest.
The FTC also lacked evidence to show why they imposed such a sweeping prohibition instead of targeting specific, harmful noncompetes.
In September, the FTC had previously told a Pennsylvania federal judge that an appeal of the Texas decision “would likely take months to fully brief and could take a year or longer until a final decision.” So, don’t expect the nationwide injunction to be lifted anytime soon, if at all.
Additionally, a change in presidential administration could impact this appeal, and another one is pending in the Eleventh Circuit Court of Appeals after a federal judge in Florida enjoined the noncompete ruling for a single plaintiff. FTC Chair Lina Khan’s current term ended last month. She remains FTC chair unless and until a new president nominates a replacement. This Wired article suggests neither presidential candidate may be keen on keeping Ms. Khan as FTC chair. And if she goes, so might any remaining momentum for the noncompete ban.
For now, noncompetes remain regulated on a state-by-state basis. Check your local listings and call your employment lawyer if you have questions about them.