The Federal Trade Commission has appealed a federal court’s August ruling that prohibited the agency from enforcing a rule prohibiting employers from using noncompete agreements.
The agency’s action came on Friday.
“Going forward, employers should continue focusing on state law compliance and narrow drafting of all restrictive covenants to achieve only the protections that legitimate business interests require, particularly given the increasing scrutiny of noncompete agreements and other restrictive covenants by state and federal lawmakers and regulators,” advised attorneys at Ogletree Deakins.
The appeal is of a ruling by Judge Ada Brown of the US District Court for the Northern District of Texas, who said that FTC had exceeded its authority in introducing its ban. Her August decision expanded her July 3 ruling to apply to all employers, not just the parties in a lawsuit challenging the ban in Texas, and let the status quo in each state prevail when it comes to those clauses.
Following Brown’s earlier ruling, a Pennsylvania court declined a motion to block the rule and a Florida court granted a limited injunction that affected only The Villages retirement community.
The FTC’s rule originally had been scheduled to go into effect on Sept. 4. It would have prohibited employers from using noncompete clauses in most instances and would have made existing noncompetes for most workers no longer enforceable. Existing agreements with senior executives — employees in policy-making positions and earning more than $151,164 annually — could have remained in force under the rule, but employers would have been banned from entering or enforcing any new noncompetes, even with senior executives.
The federal agency says that 18% of workers, or 30 million people, are covered by noncompete agreements and that banning them would lead to higher earnings for the average worker, move innovation and the creation of more start-up companies.
The FTC maintains its position that the rule “falls squarely within its mandate to block ‘unfair methods of competition’ through enforcement and rulemaking,” Bloomberg Law reported Friday.
