Federal judge partially blocks US ban on non-competes: NPR

A federal court in Texas has partially blocked the government’s ban on non-compete agreements that was set to take effect on September 4.

Ryan LLC, a Dallas tax services firm, had sued to block the rule just hours after the Federal Trade Commission voted narrowly to ban the noncompete for nearly all American workers in April.

The decision, by Judge Ada Brown of the U.S. District Court for the Northern District of Texas, postpones the effective date of the noncompete for the plaintiffs.

In her ruling, Brown wrote that the plaintiffs are likely to succeed on the merits of the case and that blocking the rule for now is in the public interest.

“While this order is preliminary, the Court intends to rule on the final merits of this action on or before August 30, 2024,” she wrote.

Ryan’s lawsuit was joined by several organizations representing a broad cross-section of American businesses, including the US Chamber of Commerce, the Business Roundtable and the Texas Business Association.

About 30 million people, or one in five American workers, are subject to noncompetes. Labor agreements typically prevent workers—everyone from minimum wage earners to CEOs—from joining competing businesses or starting their own.

In its complaint, Ryan LLC accused the FTC of exceeding its statutory authority in declaring all noncompetes unfair and anticompetitive.

Judge Brown agreed, writing: “The FTC lacks substantial rulemaking authority regarding unfair methods of competition.”

Tax services firm also argued that banning non-competes would cause “serious and irreparable injury” to its business, including compromising its confidential information and enabling competitors to poach valuable employees whose knowledge and training would be leaked the door.

Across the country, many businesses large and small banded together in defiance of the new rule.

A separate but similar case brought by ATS Tree Services, a small tree care provider in Pennsylvania, has a hearing scheduled for July 10.

“The essence of economic freedom”

Meanwhile, the FTC has argued that non-competes stifle innovation and harm workers.

“The freedom to change jobs is essential to economic freedom and to a competitive and thriving economy,” FTC Chairwoman Lina M. Khan said in a statement when the proposed rule was first introduced. “Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool they need to build and expand.”

According to the FTC, the new rule could lead to wage increases of up to $300 billion a year and the creation of 8,500 new businesses annually, as workers can freely pursue new opportunities without fear of being driven to court by their employers.

The ban would create an exemption for senior executives with existing non-compete agreements, on the grounds that these agreements are more likely to have been negotiated. The FTC estimates that less than 1% of workers would qualify as senior executives.

Existing non-compete agreements will not have to be formally terminated under the rule, but employers will be required to inform their employees that they are no longer enforceable.

However, the Texas decision is far from the final word on the non-compete rule. The case will continue to make its way through the appeals process, a legal journey that could take months, if not years.

Why is this doctor seeking a non-compete ban?

At the Boyne Area Free Clinic in rural northern Michigan, medical director and family physician James Applegate hopes the ban will go into full effect on Sept. 4, as planned.

Applegate’s clinic provides free primary health care to patients who are underinsured and underinsured, mostly low-wage workers from area hotels, restaurants and ski resorts.

For more complex medical needs, Applegate relies on other doctors in the area to provide free specialty care. But he says the non-compete hurts patients by driving away doctors, a concern doctors across the country shared in public comments to the FTC.

The American Medical Association estimates that between 37% and 45% of physicians have signed noncompetes, which typically prevent them from taking another job within a certain radius, up to 50 miles, for a certain period of time after they leave. leave the job, usually one or two years.

What this means for doctors is that if they have a problem with their employer and want a new job, they have to leave the area all together.

“They leave their patients. They have to leave the community,” Applegate says. “It’s just morally wrong.”

But others support non-competes

However, a thousand miles south, Sarah Ruiz worries that ending the non-competes would jeopardize her yoga business.

Ruiz opened Sweet Tea Yoga in 2018 after moving to Peachtree City and realizing the golf cart community of 40,000 people had no dedicated yoga studio.

At first, she never thought to force her teachers to sign a non-compete. She knows, yoga teachers usually have to work together to make a living.

But in 2021, one of her teachers opened a brand new studio three miles away, taking half of Sweet Tea’s unlimited monthly memberships.

“I was burned and it hurt,” says Ruiz. “After that, I then created a non-compete.”

She still allows her teachers to teach yoga wherever they want. Many teach elsewhere, including at a nearby wellness center and online from their homes.

But its noncompete limits them from opening a new studio within a five-mile radius of Sweet Tea Yoga for two years after employment ends.

She says none of her teachers refused to sign it.

“Most of them were supportive because it was personal to them too,” she says.

Because yoga teachers’ pay is based in part on the number of students in each class, her teachers lost income when half of the regular students left.

“It took a full year, if not a year and a half, before we got back to where we were,” says Ruiz.

If and when the no-compete ban goes into effect, she says she’ll have to talk to her teachers and hope for the best.