• The Texas court ruled that the FTC overstepped its rulemaking authority, but the agency argues that noncompetes harm workers and competition.

• The appeal will be tried at the conservative-dominated Fifth Circuit Court of Appeals.

• Last month, the FTC also appealed a Florida ruling that the ban on non-compete clauses was unlawful, but limited the decision to the plaintiff.

The Federal Trade Commission (FTC) is challenging a Texas federal court’s ruling that blocked its plan to ban noncompete agreements across the U.S., according to a Bloomberg Law report. 

The FTC filed a notice of appeal on October 18. The appeal will be tried at the New Orleans-based U.S. Court of Appeals for the Fifth Circuit, a conservative-dominated court that has become a hot spot for challenges over federal regulation in recent months, the report notes.

What the Noncompete Ban Provides

Noncompete agreements have been a flashpoint for debate, with many arguing that they stifle innovation and limit workers’ ability to negotiate better employment terms. 

The FTC’s proposed ban, introduced in April this year, aimed to prohibit businesses from requiring employees to sign noncompete agreements, which often limit workers’ ability to seek jobs at competing companies after leaving their employer.

• Who would be affected: 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.

• What the Opposition Says: 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 U.S. Chamber of Commerce. 

What the Texas Ruling Said

In an August ruling, Judge Ada Brown of the U.S. District Court for the Northern District of Texas said the FTC’s rule exceeded its legal authority. 

• Judge Brown sided with the Chamber of Commerce and Texas-based Ryan LLC that sued to block the measure. The judge said the FTC lacked the authority to enact the ban, which she said was “unreasonably overbroad without a reasonable explanation.” 

• The court further found that  the rule is arbitrary and capricious that the “FTC failed to sufficiently address alternatives to issuing the Rule.”

The ban was expected to go into effect on September 4, but Brown’s decision vacated the regulation on a nationwide basis.

Other Court Cases

Other lawsuits to block the non-compete ban are being held in:

• Pennsylvania: The court upheld the FTC's authority as not implicating the major questions doctrine, and ruled that the agency has the right to regulate non-compete clauses as part of its mandate to protect consumers and promote fair competition

• Florida: The court ruled that the ban on non-compete clauses is unlawful, but limited the decision to the plaintiff rather than blocking the FTC from enforcing the ban nationwide. The FTC appealed the Florida ruling last month.

Neither of these suits has yet reached a final determination on the FTC’s rulemaking authority.