For much of the past year, nearly one in five of all employees in the United States have been waiting for September 4. That was the day the Federal Trade Commission set to ban most non-compete contracts between employees and their employers. Due to a recent judicial ruling, the wait for a non-compete contracts ban will take significantly longer, if it happens at all.

On August 21, a federal court in Texas ruled the FTC does not have the authority to make sweeping bans on any business practice nationwide and has halted the FTC’s new regulation from taking effect. What that means is that for the foreseeable future, employees and employers should continue as they have been for years, looking at non-competes on a case-by-case basis. And both groups should not presume this will change anytime soon.

The Orlando Law Group wrote about the possible impacts of this rule last November, warning businesses about the ban when the final ruling was announced. With the recent news, it is still high time to review your non-compete contracts.

How did we get here?

Under most non-compete contracts, an employee is not able to work for a competitor for a specified period, many times several years. If the employee decides to work for a competitor, they will be required to pay back any severance and, perhaps, pay damages.

For many employees, it was not a negotiated contract, but something that was required – basically a “sign this if you want to work here.”

The Federal Trade Commission went through its rule-making process, saying non-compete contracts are an “unfair method of competition” and are in violation of Section 5 of the Federal Trade Commission Act.

Plus, the Federal Trade Commission projected non-compete contracts lowered wages by $300 billion for more than 30 million Americans and that eliminating non-compete contracts would increase competition and lower prices.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina M. Khan in the release announcing the rulemaking process last November. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”

What is the Power of Executive Agencies?

The ruling by the FTC was challenged in a Texas court by a company called Ryan LLC, a local tax firm. In the lawsuit, which was joined by the U.S. Chamber of Commerce, the company said the following according to NPR:

“In requesting relief, Ryan, the tax services firm, had argued that the ban on noncompetes would inflict ‘serious and irreparable injuries’ on its business, including by putting its confidential information at risk and enabling its competitors to poach valuable employees, whose knowledge and training would go out the door.”

The judge put a limited injunction on the FTC ban in July, and on August 21, expanded the injunction nationwide.

The reason?

Basically, the Federal Trade Commission does not have the authority to enact such a sweeping ban without the direction of Congress.

Chevron Decision Impacts Non-Competes

Earlier this year, the U.S. Supreme Court overturned a decades-old practice of considering the “Chevron Test” to the actions of federal agencies. 

That test basically said that if a current regulation was ambiguous or silent on an issue, then the courts must follow the agency’s direction.

In June, that changed with the U.S. Supreme Court saying that there must be direction from Congress for an agency to act in a manner like the FTC acted.

The Texas court ruling specifically referred to Chevron explaining that Congress did not give the FTC the authority to make a rule as it did with the non-compete ban, as among other issues the court had with the FTC’s ban.

What Comes Next?

The most likely next step is for the federal government to appeal the injunction to the 5th District Court of Appeals and eventually to the U.S. Supreme Court.

That process will take years and could get stopped by a future Presidential Administration. Besides, with the current makeup of the 5th District and the Supreme Court, it is highly unlikely the injunction would be overturned.

After all, this Supreme Court overturned the Chevron Test, which allowed this injunction to happen.

Of course, Congress could enact a ban on non-compete clauses, but that is not expected to happen without a major change in the partisan makeup of Congress.

Various states are enacting non-compete bans or other restrictions. If you work in Oklahoma, California, Minnesota or North Dakota, non-competes are not allowed. Other states have restrictions which you can see at the Economic Innovation Group’s website here.

In Florida, the last change to non-compete laws was more than five years ago. There are some restrictions, with the key one being non-compete contracts must be reasonably necessary and (in some instances) should be six months or less, and certainly not more than two years.

For now, employers and employees should review their non-compete contracts for compliance with state and federal laws. They also must understand the notion that a national non-compete ban has vanished.

The attorneys at The Orlando Law Group can help businesses with these types of issues in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and Central Florida.

If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.

The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.