A federal judge’s decision to strike down the Federal Trade Commission’s ban on employment noncompete agreements is being celebrated by the senior living industry, among other business and employer groups.
US District Court for the Northern District of Texas Judge Ada Brown’s decision on Tuesday set off a flurry of activity among workforces around the country. Brown’s 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, leaving employers unsure about whether the rule might be vacated prior to Sept. 4.
The US Chamber of Commerce joined a handful of business organizations to sue the FTC and sought to block the noncompete rule from taking effect Sept. 4. The lawsuit came within hours of the FTC’s vote approving the rule in April.
A win against government micromanaging
US Chamber of Commerce President and CEO Suzanne P. Clark called Tuesday’s decision a “significant win in the chamber’s fight against government micromanagement of business decisions.”
“A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses and our economy at a competitive disadvantage,” Clark said in a statement. “We remain committed to holding the FTC — and all agencies — accountable to the rule of law, ensuring American workers and businesses can thrive.”
The American Health Care Association / National Center for Assisted Living shared a similar sentiment.
“Regulations should be about encouraging providers to do the right thing — not stifling innovation or overwhelming providers that they can’t keep up,” Clif Porter, AHCA/NCAL senior vice president of government relations and incoming president and CEO, told McKnight’s Senior Living. “Rather than excessive overreach, we encourage the administration to instead work on more productive, rational regulations that prioritize and protect access to care for our nation’s seniors.”
An Argentum leader told McKnight’s Senior Living that her group supports the decision and agreed with the US Chamber of Commerce and others that the rule represented an “unlawful extension of power” that would have placed the nation’s workers, businesses and the economy at a competitive disadvantage.
“We are hopeful with the recent Supreme Court cases that the courts, rather than federal agencies, will increasingly play a role in determining the meaning of federal statutes when ambiguous, and more importantly determine when federal agency actions exceed statutory authority,” Argentum Senior Vice President of Government Affairs Maggie Elehwany said.
The rule would have prohibited employers from using the noncompete clause 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.
In her latest ruling, Brown said that the FTC exceeded its statutory authority in issuing the ban and that the rule was “arbitrary and capricious” by taking a “one-size-fits-all” approach.
“The role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do,” Brown wrote, adding that her order should apply to all employers across the country.
Implications of court decisions showing
The decision is one of the first prominent cases demonstrating the “evolving power of courts” to overrule agency actions in the wake of the Supreme Court’s decisions to strike down the Chevron doctrine earlier this summer, according to a blog post form Fisher Phillips. The June 28 ruling tossed out a long-standing standard that required courts to give substantial deference to agencies. In a subsequent Supreme Court ruling — Corner Post, Inc. v. Board of Governors — the court opened the door to broad challenges to federal regulations long after they took effect.
Fisher Phillips said the FTC noncompete ban ruling is a “perfect example of how this new standard will be deployed by courts to significant effect.” The firm pointed out a sentence in Brown’s ruling referencing the Supreme Court Decision and noting that the Administrative Procedure Act should “serve as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.”
The FTC could appeal the decision or seek an emergency order from the 5th Circuit Court of Appeals to ensure the ruling takes effect next month. The issue also potentially could make its way to the Supreme Court, but given the High Court’s recent rulings, the expectation is that it would side with Brown’s ruling and prevent the implementation of the rule, according to Kevin C. Paule, an attorney with Hill Ward Henderson in Tampa, FL.
“Over the past few years, the landscape has somewhat changed and state legislatures and courts have expressed skepticism regarding the use of noncompete agreements,” Paule told McKnight’s Senior Living, adding the likelihood that additional states will pass laws limiting their use. “Employers that rely on noncompete agreements no longer need to worry about the FTC’s rule for the time being, but depending on where they operate, they should carefully review their agreements to ensure they’ll survive legal challenges in the future.”
Paule recommended that all employers include nonsolicit and nondisclosure provisions in agreements, which are less susceptible to legal challenges.
“Employers should continue to be thoughtful with their approach to noncompete agreements, ensuring compliance with existing state laws and monitoring the status of the FTC rule as it winds its way through the appellate process,” Melissa McDonagh, co-chair of Littler’s unfair competition and trade secrets practice group, told McKnight’s Senior Living.
