A US federal judge in Florida ruled on Thursday that the Federal Trade Commission’s (FTC) impending ban on non-compete clauses in employment contracts is unlawful and enjoined it. However, the decision only applies to the plaintiff, a real estate broker, rather than blocking the FTC from enforcing the ban nationwide.
The plaintiff argued that the FTC could not make substantive rules about what constitutes unfair methods of competition. Moreover, even if it could, the rule would exceed the agency’s powers and violate the Major Questions Doctrine.
Reading his opinion from the bench, Judge Timothy J. Corrigan explained that while the FTC can make some substantive rules, the proposed ban violates the Major Questions Doctrine. He noted that the ban has a “huge economic impact” and that regulation of non-compete clauses has historically been reserved to state governments. Therefore, Congress must have explicitly authorized the agency to issue such rules, which the current statute, Section 6(g) of the FTC Act, “falls short” of doing.
This ruling follows a similar decision in July, where a federal judge in Texas also blocked the FTC from enforcing the rule against a group of plaintiffs, including the US Chamber of Commerce. That judge concluded that “Congress vested the Commission with the power to promulgate substantive rules regarding only unfair or deceptive acts or practices, not unfair methods of competition.”
Despite these setbacks for the FTC, a federal judge in Pennsylvania later ruled that the non-compete ban is lawful. According to this judge, the FTC does have substantive rule-making authority and “acted within its authority” in announcing the ban. This decision does not impact the other two cases but suggests that appellate courts might offer differing opinions on the matter.
These judicial decisions occur in the wake of Loper Bright Enterprises v. Raimondo, wherein the US Supreme Court overruled Chevron, thereby limiting the deference courts give to agencies on questions of their statutory authority.