Sometimes, we simply come up against an unexpected roadblock that derails and despoils the progress we thought we had been making. That seems to be the situation in which one of our federal agencies now finds itself.
The Original Rule
You may recall we reported some months ago that the U.S. Federal Trade Commission (FTC) had issued a rule that would have essentially banned most noncompete agreements that companies sometimes force job-seekers to sign as a condition of employment. Such agreements, of course, would make it more difficult for an individual whose career path is connected to a certain industry to find work within that same industry should their current job status come to an end. The FTC’s ban on “noncompetes” was designed to allow workers to move from company to company within the same industry, or to start their own business in the same market space, without having to wait a specified period of years between jobs.
The FTC’s new rule was to go into effect on September 4. But now those plans have come to a screeching halt. According to the Associated Press (AP) and other major outlets, a federal district court judge has in the last few days blocked the FTC’s noncompete ban At least three companies filed suit against the agency after it announced its new rule. Their cases were submitted in Florida, Pennsylvania and Texas. While the Florida and Pennsylvania cases remain pending, the judge in the Texas case has spoken.
Texas Once More
In an August 20 ruling, U.S. District Court Judge Ada Brown of the Northern District of Texas granted a motion for summary judgement filed by the U.S. Chamber of Commerce and other plaintiffs, which had the effect of rejecting the FTC’s own petition for a judgement in its favor. In reaching her decision, Brown concluded that that the FTC “exceeded its statutory authority” in making the rule, which the judge called “arbitrary and capricious.” The judge also held that the ban violates the Administrative Procedure Act and effectively would cause irreparable harm to companies and corporations.
As a result of the court’s decision, the FTC won’t be able to enforce the federal ban. Nevertheless, the decision does not prevent the agency from addressing noncompete agreements through “case-by-case” enforcement actions, said Victoria Graham, an FTC spokesperson. The FTC is also considering appealing the court’s decision, Graham said.
The decision is a major victory for the U.S. Chamber of Commerce, the largest business lobby in the nation; but, according to one news outlet, it’s more of a mixed bag for the healthcare industry. Health news aggregator HealthcareDive reported that “The noncompete ban was expected to help physicians, nurses and other medical workers locked into restrictive contracts by making it easier to change jobs and potentially cause wages to increase.” According to the American Medical Association (AMA), approximately 35 to 45 percent of doctors are bound by noncompetes. About 30 million people, or 20 percent of U.S. workers, have signed noncompetes, according to the FTC.
The American Hospital Association (AMA), which strongly opposed the ban, cheered the judge’s August 20 decision. AHA general counsel Chad Golder released the following statement:
The rule was a breathtaking assertion of regulatory power … made worse by the fact that the Commissioners did not attempt to understand the disruptive impact it would have on hospitals, health systems, and the patients they serve.
Foreseeing the Future
We may not have heard the last on this issue. If the FTC ultimately decides to move forward with an appeal, which would presumably be heard before the historically conservative U.S. Fifth Circuit Court of Appeals in New Orleans, we could have a new ruling—perhaps affirming or overturing (in full or in part) the district court’s opinion. Some observers have opined that the FTC is willing to take its case all the way to the U.S. Supreme Court. By that time, a new administration may be in place, and who knows whether or not the constitution of the current FTC will be the same at that time.
The bottom line is that the looming September 4 deadline for outlawing most noncompete agreements has been taken off the table. But hospitals and others in the healthcare industry will still need to wait for the final word on this topic.