Bloomberg Law | BY Justin Wise | June 14, 2024

A Texas federal judge said she will decide a challenge to the Federal Trade Commission’s near-total ban on worker noncompetes without a hearing.

A hearing on the “requested injunctive relief is not necessary,” said Ada E. Brown of the US District Court for the Northern District of Texas in a brief order submitted late Thursday.

Brown has said she will make a decision by July 3 on a motion for a preliminary injunction seeking to block the regulation, which is set to go into effect in September. A ruling will carry significant weight, as noncompete provisions are utilized across the economy, including in industries such as tech and finance.

A Texas tax firm, Ryan LLC, filed a lawsuit mere hours after the rule was finalized in April seeking an injunction preventing it from becoming law. Ryan LLC, the Chamber of Commerce and other business groups claim the FTC stepped beyond its authority with the rule and that the regulation does not account for certain non-competes that have been rendered lawful in the past.

The FTC in April passed the new regulation in a 3-2 commission vote. The rule, if it goes into effect, will prohibit virtually all noncompete provisions that keep employees from making job moves in a certain industry for a period of time.

The FTC has said the rule falls within its mandate to regulate unfair methods of competition. Some states, including California, a hub for jobs in the tech industry, already have restrictions on the use of noncompete provisions.

Ryan LLC is represented by Gibson Dunn & Crutcher and The Fillmore Law Firm.

The case is Ryan LLC v. Federal Trade Commission, N.D. Tex., No. 24-cv-00986, 6/13/24.

WISCA NOTE: The Ambulatory Surgery Center Association submitted formal comments opposing the proposed rule, but did not take a position on the appropriateness of noncompete agreements specifically. In the comments, ASCA noted, “Under this proposal, surgery centers and other tax-paying healthcare providers would be subject to restrictions that tax-exempt systems would not. Hospitals are more likely to employ physicians currently, and this rule would allow nonprofit providers to more aggressively engage in noncompetitive behavior that would impede a physician’s ability to eventually move to an ASC or other healthcare provider.”