Federal court stalls FTC's noncompete ban

A federal court in Texas has approved a preliminary injunction against the Federal Trade Commission's sweeping noncompete ban, which, if implemented, would have seismic effects on the healthcare industry and the U.S. economy more broadly.

The preliminary injunction prevents the rule from taking effect Sept. 4 while the court considers if the FTC has authority to issue the ban.

U.S. District Judge Ada Brown sided with tax preparation company Ryan LLC and the U.S. Chamber of Commerce, both of which argued that the FTC lacks authority to implement rules defining unfair methods of competition.

Ms. Brown said in the July 3 ruling that the plaintiffs are "likely to succeed on the merits the FTC lacks statutory authority to promulgate the noncompete rule," which she described as "arbitrary and capricious."

The court will rule on the ultimate merits of the challenge by Aug. 30, but a review so far indicated the ban will be struck down, according to court documents obtained by Becker's.

The American Hospital Association previously voiced its opposition to the rule and pushed the FTC to limit the reach of its authority specifically for the healthcare industry. Pointing to hospitals registered under section 501(c) of the Internal Revenue Code claiming tax-exempt status as nonprofits, the AHA argued that these entities are outside the FTC's jurisdiction — a claim the commission categorically refutes. 

If implemented, the FTC rule would allow existing noncompetes for senior executives to remain in effect but would prohibit employers from entering into or attempt to enforce any new competes — even if they involve senior executives.  

"The FTC stands by our clear authority, supported by statute and precedent, to issue this rule," Douglas Farrar, director of the FTC's office of public affairs, said in a statement provided to Becker's. "We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans' economic liberty."

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