About four months ago, I blogged about the surprising (to me) prevalence of noncompete agreements in medicine. “[N]early half of primary care physicians in group practices and more than a third of physicians employed at hospitals or free-standing clinics [are] bound by a noncompete agreement. The prevalence of noncompete agreements has increased as more doctors are now employed by hospitals or large health systems, which have been steadily buying up group medical practices . . . .” https://www.nbcnews.com/politics/economics/hospitals-are-fighting-keep-former-doctors-seeing-patients-rcna134341 (3/3/2024). Here’s the final paragraph of that post (https://www.videntpartners.com/blog/2024/non-compete-agreements-medicine):
“For the FTC’s proposed rule banning non-competes, see https://www.federalregister.gov/documents/2023/01/19/2023-00414/non-compete-clause-rule. For the current status of the proposed rule and what is expected when the FTC issues the final rule (namely, litigation), see https://www.natlawreview.com/article/update-status-non-competes-and-what-expect-2024.”
In April, the FTC voted in favor of the final rule, and as expected, lawsuits requesting preliminary and permanent injunctions to stop the rule from taking effect soon followed. The first two courts to rule on the injunction motions reached opposite conclusions.
In https://thehill.com/business/4754810-federal-judge-blocks-noncompete-ban/ (7/3/2024), the reporter writes:
A federal judge on Wednesday granted a preliminary injunction on a nationwide ban on noncompete agreements issued this spring, calling into question its future in the face of opposition by prominent business groups. . . . The ruling was notably narrow, postponing the Sept. 4 effective date of the rule “as applied to the Plaintiffs.” The U.S. District Court for the Northern District of Texas said it would “rule on the ultimate merits of this action on or before August 30, 2024.”
“The text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition,” U.S. District Judge Ada Brown wrote.
[The first link in the first sentence above (“granted a preliminary injunction”) is a link to the opinion itself. The court also found “a substantial likelihood the Rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation. 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.” – MA]
Douglas Farrar, director of the FTC’s Office of Public Affairs, told The Hill that “the FTC stands by our clear authority, supported by statute and precedent, to issue this rule.” . . .
Daryl Joseffer, the [U.S. Chamber of Commerce’s] litigation center executive vice president and chief counsel, called the judge’s decision “a big win in the Chamber’s fight against government micromanagement of business decisions.”
“The FTC’s blanket ban on noncompete is an unlawful power grab that defies the agency’s constitutional and statutory authority and sets a dangerous precedent where the government knows better than the markets. The U.S. Chamber will continue to hold the FTC accountable in court,” Joseffer said in a statement.
Three weeks later, the U.S. District Court for the Eastern District of Pennsylvania ruled the other way. https://thehill.com/business/4790236-federal-trade-commission-noncompete-ban/ (7/24/2024):
A federal judge has rejected a tree-trimming company’s bid to block the Federal Trade Commission’s (FTC) ban on noncompete agreements from taking effect. . . .
U.S. District Judge Kelley Hodge in Philadelphia said Tuesday that the FTC has the power to “to prevent unfair methods of competition in commerce” under the 1914 Federal Trade Commission Act, including agreements that prevent tens of millions of employees from leaving to work for a competitor or start a competing business.
“The Court finds Plaintiff has failed to establish a reasonable likelihood that it will succeed on the merits of its claims that the FTC lacks substantive rulemaking authority under its enabling statute, that the FTC exceeded its authority, and that Congress unconstitutionally delegated legislative power to the FTC,” Hodge wrote in her opinion.
FTC spokesperson Douglas Farrar told The Hill that “the judge’s decision fully vindicates that precedent and the plain text of the FTC Act clearly provide us rulemaking authority to ban noncompete clauses, which harm competition by inhibiting workers’ freedom and mobility while stunting economic growth.”
Josh Robbins, an attorney for ATS at the libertarian Pacific Legal Foundation, said he and his clients were “disappointed” by the judge’s decision and vowed to “continue to fight the FTC’s power-grab.
“The FTC does not have the statutory authority to rewrite millions of employment contracts by banning non-compete agreements. . . .”
With these two rulings, the battle lines are clearly drawn. I will make a wild guess that, on appeal, the 5th Circuit will affirm Judge Brown’s decision and the 3rd Circuit will affirm Judge Hodge’s, thus creating an almost instant (as these things go) split in the circuits. I think the Supreme Court will probably grant certiorari in both cases to resolve the split as soon as possible, though it may let the issue cook in the lower courts for a bit longer to get the benefit of more appellate opinions. Regardless, the Court will certainly address the issue in either the October 2024 or the October 2025 Term.
This is an issue of enormous importance to employers, employees and consumers. I will continue to report on these cases as they arise.
