FTC to Appeal Court Decision Blocking Worker Noncompete Ban (1)

The Federal Trade Commission is appealing a Texas federal judge’s ruling that blocked its near-total ban on worker noncompete agreements, continuing what’s become a bitter fight over the regulation.

The FTC filed a notice of appeal Friday that it would take the case to the US Court of Appeals for the Fifth Circuit.

The motion sets up a clash in front of the New Orleans-based appeals court, a conservative-dominated court that has become a hot spot for challenges over federal regulations.

The FTC declined to comment.

Judge Ada Brown of the US District Court for the Northern District of Texas in an Aug. 20 ruling said the FTC’s rule barring the use of most noncompete agreements exceeded its legal authority. The ban was slated to go into effect Sept. 4, however Brown’s decision vacated the regulation on a nationwide basis.

The FTC has argued the noncompete ban—issued in an April 3-2 party-line commission vote—falls squarely within its mandate to block “unfair methods of competition” through enforcement and rulemaking.

About 20% of the workforce, or roughly 30 million people, are subject to noncompete contracts placing restrictions on their ability to move jobs, according to FTC estimates. The commission claims that eliminating these types of agreements would boost wages and opportunities.

Business groups claim the contracts can be necessary because of the investments employers make in training workers. Parties challenging the rule included a Texas tax services firm and the US Chamber of Commerce. Others pursued lawsuits in Pennsylvania and Florida, which sowed some tension in the judiciary over FTC authority.

In preliminary rulings, a Pennsylvania federal judge sided with the FTC on that issue, while a Florida judge backed a challenge. Neither of those judges had made a final determination on the FTC rule when the Texas decision came in.

In September, the FTC also appealed the Florida ruling, which held that the agency likely has the authority to issue rules addressing unfair methods of competition but that it didn’t pass the Supreme Court’s “major questions” test. That standard demands regulators retain clear congressional authorization when issuing rules.

The Fifth Circuit has regularly weighed in on agency regulations during the Biden administration. In June,the court struck down a rule from the US Securities and Exchange Commission that would have required hedge funds and private equity firms to detail quarterly fees and expenses to investors.

The Chamber of Commerce and Ryan LLC, a Texas-based tax firm, that sued to block the FTC labor measure have been represented by law firms including Gibson Dunn & Crutcher LLP and Sullivan & Cromwell LLP.

Lawyers who spearheaded the case include Eugene Scalia, a former US Labor Secretary who has mounted challenges to regulations from the FTC, SEC, and Department of Labor during the Biden administration.

The case is Ryan LLC v. FTC, N.D. Tex., 3:24-cv-00986-E, notice of appeal 10/18/24