The Federal Trade Commission's voted 3-2 on April 23 to ban on noncompete clauses for most U.S. workers, and the act is slated to take effect Sept. 4.
According to a May 20 report from the National Law Review, however, it is "far from settled whether the ban will take effect at all."
Within hours of the vote, tax services provider Ryan filed a lawsuit in the Northern District of Texas challenging the ban. On April 24, the U.S. Chamber of Commerce also began taking action to sue the FTC, arguing the FTC is overstepping its authority. Three other business groups — the Business Roundtable, the Texas Association of Business and the Longview Chamber of Commerce — joined the suit.
A tax services firm in Dallas and a Pennsylvania company, ATS Tree Services, which employs only 12 people, are also suing the FTC, raising concerns similar to the chamber of commerce.
The suits challenge the FTCs' authority to implement the ban under two sections of the Act, according to the National Law Review. The challengers argue Congress has " never empowered the FTC with general rulemaking authority regarding matters under Congress’s own jurisdiction" and that the role of the FTC is to develop internal rules, rather than substantive rules binding private parties.
The suits also argue that the "ban implicates the Major Questions Doctrine, a statutory interpretation principle that presumes that Congress does not delegate significant political or economic issues to executive agencies," among other allegations.
On May 3, a judge suspended the Chamber of Commerce's case because Ryan filed its challenge first and the two suits sought the same relief. On May 9, another judge granted the Chamber of Commerce’s motion to join the Ryan lawsuit — that briefing will be completed by June 12 and a decision will be issued by July 3. On May 10, the Chamber moved to stay the ban's effective date, and nearly a dozen business associations have filed briefs supporting that motion.
"Some if not all of these challenges may prove successful," according to the National Law Review. "Indeed, one of these courts may grant a nationwide injunction against enforcement of the ban until its validity can be adjudicated given the breadth of the ban’s impact."
Regardless of how the lawsuits play out, the report added, the losing parties will likely appeal the decision and these challenges will postpone the enforcement of the rule.
"In the interim, employers should continue to follow the litigation to keep track of the potential enforceability of the final rule, any injunctions granted, and potential timing of resolution, and begin evaluating how they will comply with the rule should it become effective," the report said.