As expected, Judge Ada E. Brown of the U.S District Court for the Northern District of Texas has granted the plaintiff’s motion for a preliminary injunction against the implementation of the US Federal Trade Commission’s recently enacted rule banning non-competes nationwide. The rule, enabled as a result of a 3-2 party-line vote of non-elected executive branch appointees, would have invalidated, with few exceptions, all current and future non-compete agreements. It was set to take effect on September 4 of this year.
Scope and Definition of Non-Compete Clauses
The Rule defined the term, “non-compete clause,” broadly as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
Executive Branch Overreach: A Growing Concern
Judge Brown held that the FTC had no authority to adopt such a sweeping rule. The FTC Rule was another example of overreach by the executive branch, overreach which is not unique to the current party in control. The function of the executive branch is to enforce the laws enacted by Congress, not make them. Over the past several decades, we have witnessed an erosion of that principle, the result of which has been, in numerous instances, the president and his appointees bypass Congress and enact rules that have the force of law under the guise of “rulemaking.”
State-Level Actions on Non-Compete Agreements
Rulemaking, of course, has its place, and is expressly authorized under the Administrative Procedures Act. Federal agencies, however, have routinely overstepped their constitutional and statutory limitations. Many states, including, as of 2023 Minnesota, have restricted or eliminated the use of non-competes. But, in every such instance, those laws were enacted not by unelected political appointees, but by the states’ elected legislative representatives with the approval of the state’s duly elected governor.
