Federal court strikes down FTC ban on noncompete contracts
A federal court in Texas has officially struck down the Federal Trade Commission (FTC)'s ban on noncompete clauses in employment contracts. The ruling comes after the court issued a partial halt to the ban in July.
Judge Ada Brown presided over both rulings, ultimately striking down the ban entirely on Tuesday, arguing the FTC exceeded its authority under guidelines of the Administrative Procedure Act.
The lawsuit against the FTC was brought to the U.S. District Court for the Northern District of Texas by the U.S. Chamber of Commerce, a massive business lobby representing employers from most industries.
The ruling in Texas does not impact state regulations that ban noncompetes, including a Maryland law that bans use of the clauses for all healthcare professionals, including veterinarians and dentists.
The ban on noncompete agreements was expected to go into effect nationwide on Sept. 4. It has been officially halted, pending appeal to a higher court. The ban was first announced in April.
At that time, it wasn’t clear how the ban would impact healthcare, as it exempts nonprofit entities. According to lawyers at Husch Blackwell, the tax filing status of not-for-profit hospitals and health systems would ultimately determine if they must comply with the FTC.
The ban on noncompetes was supported by physician advocacy and lobby groups, including the American Medical Association (AMA). On its website, the AMA said the clauses impact between 37% and 45% of physicians.
Other lobby groups representing health systems and hospitals—mainly the American Medical Group Association (AMGA)—have opposed the FTC ban on noncompete contracts.
The ruling in Texas is expected to be appealed by the FTC.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.