Federal judge grants preliminary injunction against FTC ban on noncompete clauses

A Texas federal judge on July 3 granted a preliminary injunction against the Federal Trade Commission’s ban of noncompete clauses in employment agreements.  

Judge Ada Brown’s decision sides with Dallas tax services firm Ryan LLC, the U.S. Chamber of Commerce and others, who sued in April claiming the rule is an “unlawful power grab.” The ruling only applies to the U.S. Chamber and other plaintiffs, with the ban originally slated to take effect Sept. 4.

“The text, structure and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition,” Brown wrote in her 33-page decision. “The court grants the motion for preliminary injunction and postpones the effective date of the rule as applied to the plaintiffs. While this order is preliminary, the court intends to rule on the ultimate merits of this action on or before August 30, 2024.”

U.S. Chamber of Commerce Chief Counsel Daryl Joseffer praised the decision in a statement issued July 3.

“This ruling is a big win in the chamber’s fight against government micromanagement of business decisions,” he said. “The FTC’s blanket ban on noncompetes 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.”

Meanwhile, the federal agency defended its actions in the wake of Judge Brown’s ruling.

“The FTC stands by our clear authority, supported by statute and precedent, to issue this rule,” spokesman Douglas Farrar said in a statement. “We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers and undermine Americans’ economic liberty.”

Law firm Reed Smith’s Tom Greeson—former counsel for the American College of Radiology and long-time attorney to radiology groups—anticipates the rule will eventually be overturned. Federal judges’ final rulings after a preliminary injunction rarely deviate from the initial judgment.

“I applaud the decision,” Greeson wrote in a blog post published July 5. “As I wrote in May, I believe this decision and the expected final decision in August—should that occur—is good for radiology groups, making them stronger. (That opinion is my own and not that of Reed Smith LLP.)” 

Physicians on social media voiced their concerns about how corporate entities wield noncompetes to control the profession.

“Radiology [private equity] noncompetes tend to be 2 years and involve a 20+ mile radius for every imaging center or hospital you read from. Which means if you want to leave your job in a big metro area, you're forced to uproot your entire family or go [teleradiology]. But rads don't take [patients] with them,” Ned Holman, MD, a radiologist based in Anchorage, Alaska, wrote July 5.

“Not only do radiologists not take patients, but they also have no knowledge of key decisions made by the PE firm,” responded OB/GYN specialist and blogger James V. O'leary, MD, who tweets under the handle @RealDocSpeaks. “It is abusive that corporate entities are allowed to enforce noncompetes. As there is a shortage of radiologists, the physicians should form their own groups and not work for PE or other corporate groups.”