A recent US court decision may derail a ban on noncompete agreements recently finalized by the Federal Trade Commission.
Last Thursday, the US District Court for the Northern District of Texas issued a stay and a preliminary injunction on the rule, describing it as “arbitrary and capricious” in its decision. The FTC in April finalized a rule that effectively banned noncompete agreements and no-poach clauses, which are commonly used by home care and hospice firms.
“The court finds there is a substantial likelihood the rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation,” the judge wrote. “It imposes a one-size-fits-all approach with no end date, which fails to establish a ‘rational connection between the facts found and the choice made.’”
The FTC also did not sufficiently consider “less disruptive” alternatives to the rule, according to the court, which led to its stay and preliminary injunction. These remedies will pause the non-compete ban, preventing it from taking effect following the rule’s September 4 start date, until further action is taken.
Employers in the meantime should adopt a “wait-and-see approach” as the situation develops, an analysis by JD Supra advised.
Home care and hospice providers were particularly concerned by the FTC’s ban on noncompete and no-poach agreements. The rule would require employers to rescind all noncompetes binding current and former employees, which could create time-consuming and costly challenges for some providers. Additionally, some types of non-disclosure agreements would also fall under the FTC’s definition of a non-compete, which would make these clauses more difficult or impossible to enforce.
Meanwhile, regulation of all kinds may soon face additional legal challenges. Last month, the Supreme Court threw out the long-standing Chevron doctrine, which gave regulatory agencies the final say regarding many interpretations of their rules. Without the Chevron precedent in place, legal experts expect swathes of regulations, including several Medicare and Medicaid rules, to fall under legal challenge from regulated stakeholders.
