Two strikes against FTC’s ban on noncompete agreements

BVWireIssue #263-3
August 21, 2024

case law analysis
goodwill, federal trade commission, noncompete agreement, covenant

In the wake of the overturned Chevron decision, a second federal judge has ruled that the impending ban on noncompete agreements is likely invalid. The judge, in a Florida case involving a real estate developer, blocked the Federal Trade Commission from applying the ban pending the outcome of a lawsuit claiming the FTC lacked the power to adopt the ban, which is scheduled to go into effect September 4.

In July, a federal judge in Texas blocked the FTC from enforcing the ban against a coalition of business groups, including the U.S. Chamber of Commerce. But, later that month, a judge in Philadelphia refused to block the rule, finding that it was reasonable for the FTC to determine that noncompetes are “exploitative and coercive.” Because of the competing rulings, the stage may be set for a circuit split on this matter.

Some states have already banned noncompete agreements, but the FTC rule would be the first nationwide ban. The overturning of the Chevron decision opened the door to these challenges because it weakened the power of federal agencies to interpret ambiguous laws through rulemaking.

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