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Federal Judge Halts FTC Ban on Noncompetes

On Wednesday, July 3, a federal district judge in Texas ruled that the U.S. Chamber of Commerce is “likely to succeed on the merits” of the Chamber's claim that the Federal Trade Commission lacked legislative authority to issue rules defining unfair methods of competition.  The judge suspended the FTC regulation that would have outlawed all forms of noncompete agreements effective on September 4.  Although not a final ruling, the judge's decision agrees with many legal commentators – and one FTC Commissioner – that the FTC's authorized mission is to only to enforce the antitrust laws.  It appears likely that the FTC rule will be permanently blocked in the near future.  The June 27 decision of the U.S. Supreme Court overruling the Chevron deference doctrine makes this even more likely by disallowing any argument by the FTC that the regulation must stand because it is a “reasonable” interpretation of Section 5 of the FTC Act.

A federal judge delayed implementation of the US Federal Trade Commission’s near-total ban on noncompete agreements, the first salvo in the high-stakes legal fight over how much freedom workers should have to switch jobs within an industry. US District Judge Ada Brown in Dallas sided with the US Chamber of Commerce and a Texas-based tax firm that claimed in a lawsuit the agency lacks authority to craft rules defining unfair methods of competition. The groups warned the unprecedented rule would invalidate 30 million employment contracts in a move that “amounts to a vast overhaul of the national economy.” The ban was set to take effect nationwide Sept. 4. It will now be on hold until August for the groups that seek to permanently strike the rule from the books, while the judge considers the merits of their suit.


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