(LibertyInsider.org) – FTC chair Lina M. Khan credited noncompete clauses with suppressing wages and innovation and dragging on the overall economy. The agency introduced a new final rule on April 23 banning noncompete clauses. Several firms and associations, including ATS Tree Service, LLC in Pennsylvania, sued to block the rule. On Tuesday, July 23, US District Court Judge Kelley Hodge of the Eastern District of Pennsylvania denied a request seeking a temporary injunction against the FTC rule, set to take effect September 4.
The clauses became controversial because they restrict workers from switching jobs within certain industries to increase their salaries or opening competitive businesses. However, litigants sued because they believed the FTC “exceeded [its] authority under the Federal Trade Commission Act” (FTC Act) and “violated Article I” of the Constitution by enacting the new rule.
A federal judge rejected a bid by a tree-trimming company to block a US Federal Trade Commission rule from taking effect that would ban agreements commonly signed by workers not to join their employers' rivals or launch competing businesses https://t.co/B9ZnDaH6LS pic.twitter.com/6wXtEq2HQe
— Reuters Legal (@ReutersLegal) July 23, 2024
Hodge determined that the FTC Act Sections five and six conferred powers and mechanisms on the agency to modify, restrict, investigate, or regulate industries to meet its mandate. She wrote in her opinion, “Congress granted the FTC authority to ‘make rules and regulations for the purpose of carrying out the provisions of this subchapter,’” referring to the FTC Act.
Hodge’s ruling stands in stark opposition to a ruling by US District Court Judge Ada Brown of the Northern Texas District. A coalition of businesses in Texas joined by the US Chamber of Commerce brought a lawsuit against the FTC, Ryan, LLC v FTC, seeking an injunction against the FTC order. On July 3, Brown granted a temporary injunction against the rule taking effect. Citing section six of the FTC Act in her opinion, Brown wrote that although “the FTC has some authority to [enact] rules to preclude unfair methods of competition,” it “lacks the authority to create substantive rules through this method.”
Noting the opposing rulings at the district court level, legal pundits expect the ATS and Ryan cases to proceed to the Third and Fifth Circuit Appellate Courts, respectively.
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