As David Nacht predicted in an interview on Fox News Detroit the day the FTC issued its rule banning noncompetes, a federal judge, Hon. Ada Brown (ND Texas) issued a preliminary injunction throwing out the rule, July 3, 2024. While this is only the first stage of the litigation, the opinion is consistent with the approach we can expect the US Supreme Court to take. Nacht does not expect the ban on noncompetes to survive, and early pronouncements of the death of noncompetes by the FTC and some commentators were premature and wrong.
Noncompetes affect 20 -30 million American workers. They prevent people from leaving jobs and going to competitors for a period of time. The Federal Trade Commission took the position that (1) it had the authority to ban them and (2) it needed to do so because noncompetes were an “unfair” practice in the economy.
The US Supreme Court has taken a consistent position in the last few years striking down federal regulations that affect large sectors of the economy without explicit direction by Congress. For instance, during the COVID crisis, the US Department of Labor required employees of federal contractors to get vaccinated. The Supreme Court held the Department lacked the authority to affect so many employees and companies without Congress passing a law and struck down the regulation.
Precisely because noncompetes are so commonplace and their impact is so huge will be the reason why the US Supreme Court will ultimately decide that the FTC lacks the authority to regulate them.
Nacht is not commenting on the wisdom of the public policy by the FTC– only on the legal authority of the FTC to do what it did.
Careful readers of US Supreme Court opinions are not surprised by recent decisions attracting front-page news. They are consistent with the judicial philosophy of the men and women appointed to the bench.
Too many commentators substitute their philosophy of what they want the law to be with what the federal judges want the law to be. Judges have the power to decide what is lawful: regulators, professors, and commentators do not.
More information can be found in the NY Times article by Danielle Kaye, dated July 1, 2024, “Judge Backs Challenge to F.T.C.’s Noncompete Bat, at Least for Now”.