In a final and appealable judgment, Judge Ada Brown of the U.S. District Court for the Northern District of Texas blocked the Federal Trade Commission’s rule banning noncompete agreements from going into effect on Sept. 4.
The order comes after months of legal wrangling across various court districts. In July, a federal judge in Pennsylvania denied a similar request to block the rule.
The move from Judge Kelley Brisbon Hodge in the U.S. District Court for the Eastern District of Pennsylvania came after an initial preliminary injunction earlier in July from Brown.
Brown entered the preliminary injunction on July 3. According to the Aug. 20 opinion, the court concluded at that time that there was a substantial likelihood that the plaintiffs would succeed on the merits, including the conclusions that the FTC exceeded its statutory authority, that the rule was arbitrary and capricious and that the rule would cause irreparable harm.
Ryan LLC, the company that filed the lawsuit against the FTC, did so on April 23, the day the ban was announced. After Ryan LLC filed, the U.S. Chamber of Commerce, the Business Roundtable, Texas Association of Business and Longview Chamber of Commerce joined the suit.
Both Ryan LLC and the FTC sought summary judgment in this case.
Ryan LLC argued specifically that the rule exceeded the FTC’s statutory authority for three reasons: the FTC Act didn’t authorize the FTC to issue substantive unfair-competition rules, categorically prohibiting all worker noncompete agreements as “unfair methods of competition” cannot be squared with the meaning of that phrase in Section 5 of the FTC Act and the FTC lacked statutory authority to retroactively invalidate millions of existing contracts.
The FTC raised several arguments of its own for summary judgment, including that Congress authorized it in clear language to prevent unfair methods of competition through both adjudication and rulemaking and that the rule fell squarely within its delegated authority and expertise.
The court concluded that Ryan LLC was entitled to summary judgment on all its claims under the Administrative Procedure Act and Declaratory Judgment Act because the FTC exceeded its statutory authority in implementing the rule, and because the rule is arbitrary and capricious.
In sum, Brown concluded that the text and structure of the FTC Act revealed the FTC lacked substantive rulemaking authority with respect to unfair methods of competition.
The FTC has the right to appeal the ruling, but at the time of publication no appeal has been filed.