A federal judge on Wednesday ruled against the Federal Trade Commission and in favor of the Florida retirement community The Villages, stating that the commission’s ban on most noncompete agreements could not be enforced there.
The rule is set to go into effect on Sept. 4. The decision applies only to The Villages.
Fisher Phillips attorneys Jonathan Crook and Michael P. Elkon said that the decision in the US District Court for the Middle District of Florida “was a complete victory for this particular employer, but other companies can’t rely on this order to avoid complying with the FTC’s rule.”
The FTC has said the rule will “promote competition … protecting fundamental freedom of workers to change jobs, increasing innovation and fostering new business formation.”
According to court documents for Properties of the Villages, Inc. v. Federal Trade Commission, the retirement community claimed that “limited and reasonable non-compete agreements can promote economic investment” and that “many states enable businesses, like POV, to invest in their team members — including by providing extensive training and sharing access to confidential information, existing client relationships, and goodwill associated with a business’s brand — while protecting against the risk that such investments could be co-opted or abused.”
Chief Judge Timothy Corrigan of the US District Court for the Middle District of Florida sided with the retirement community, ruling that the FTC does not have the authority to issue a broad-based ban against noncompete agreements. Rather, he said, the court “has upheld the reasonableness of POV’s limited noncompete agreements, as well as the legitimacy of the business interests on which these non-compete agreements are based.”
Other legal challenges to noncompete rule
The outcome of this case is similar to a stay and preliminary injunction issued last month in Texas. Specifically, due to that ruling, plaintiff-intervenors in a lawsuit against the FTC — Ryan LLC, the US Chamber of Commerce, the Business Roundtable, the Texas Association of Business and the Longview Chamber of Commerce — as employers, will not be held to the rule when it goes into effect next month.
The groups’ lawsuit came within hours of the FTC’s vote approving the rule in April. According to court records, tax services and software provider Ryan filed a lawsuit April 23 noting that the company “occasionally enters into non-compete agreements with employees who have access to particularly sensitive business information.”
In response to US District Court for the Northern District of Texas Judge Ada Brown’s injunction in Texas, FTC spokesperson Douglas Farrar told several media outlets that “the FTC stands by our clear authority, supported by statute and precedent, to issue this rule. We will keep fighting to free hard-working Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty.”
Brown’s final determination in Texas remains to be seen. The judge has promised to make a final ruling in the case by Aug. 30, which may change the rule’s applicability to other employers.
The Villages case differs from the Texas case, however, in that the retirement community did not seek a nationwide injunction that would have stopped the rule from applying to all employers, attorneys Crook and Elkon said.
The noncompete rule faced yet another challenge in Pennsylvania. ATS Tree Services, which employs only 12 people, sought an injunction, alleging that the FTC “cast off its statutory and constitutional restraints and unilaterally declared noncompete agreements nationally to be unfair and therefore banned.”
The judge in that case ruled in the FTC’s favor last month.
