Three reasons why a Texas federal court may block the FTC’s noncompete rule nationwide

At noon ET today on Zoom, we aim to cover everything employers need to know now about the Federal Trade Commission’s blunderbuss Non-Compete Rule. (We may have a few seats left. Click here to register for this free Zoom powered by HRLearns.)

If we don’t actually cover “everything” this afternoon, I wanted to highlight here three arguments from a brief that the Society for Human Resource Management (SHRM) filed yesterday in one of the pending lawsuits supporting a nationwide injunction of the Rule.

1. Vacating the Rule is the “default” remedy.

Last month, I blogged about how the Texas federal judge enjoined the FTC Rule — but only for the plaintiffs. Part of the judge’s rationale was that the plaintiffs were likely to succeed on the merits of their claim that the Rule is unlawful.

So, let’s assume that the judge doesn’t do a 180 when she rules on the merits of the lawsuit later this month and finds, once again, that the FTC’s Non-Compete Rule is an unlawful exercise of authority. SHRM cites binding precedent that the court must vacate the unlawful agency action. But, critically, a court in the Fifth Circuit is empowered to nullify and revoke that Rule nationwide. When plaintiffs prevail on a challenge like this, notes SHRM, “a court must set aside the agency action with nationwide effect.”

SHRM underscores that any other result, i.e., anything less than nationwide relief, would cause SHRM members to implement “potentially disparate hiring plans geographically,” causing “a patchwork of potentially inconsistent programs in an effort to adhere to different court rulings.”

2. States can take care of non-competes themselves.

SHRM argues that any lesser relief than vacatur is inappropriate because vacating the Rule does not create a regulatory gap. In plain English, they argue that “non-compete agreements have historically been regulated by the states through statutes and the common law for more than a century, and there has never been a comprehensive federal policy governing non-compete agreements.” Thus, invalidating the FTC Rule would allow the state to continue to regulate non-competes as they see fit.

3. Equity favors nationwide relief

Consider the alternative: case-by-case, party-specific relief. Talk about cumbersome and expensive, let alone potentially uneven and confusing for businesses and workers alike.

“In short,” argues SHRM, “employers and workers have no idea what is to be done on or before September 4, 2024, without clear direction and comity, while this issue likely heads to appellate courts.”

I hope to see you at noon ET on Zoom.