A federal judge has issued a stay on the U.S. Chamber of Commerce’s lawsuit challenging the Federal Trade Commission’s non-compete ban, known as the first-to-file doctrine. This action follows the FTC’s final rule banning non-compete agreements, which was issued on April 23, 2024. The rule was met with legal challenges from various organizations, including Ryan, a global tax services and software provider, who filed suit in the U.S. District Court for the Northern District of Texas.
The purpose of the lawsuits is to challenge what the companies perceive as an overreach by the FTC in regulating non-compete agreements. Ryan described the FTC’s rule as imposing an “extraordinary burden on businesses seeking to protect their intellectual property and retain top talent” in the professional services industries. The Chamber of Commerce, Business Roundtable, Longview Chamber of Commerce, and Texas Association of Business all filed a joint lawsuit against the FTC in the Eastern District of Texas.
The FTC’s final rule was the result of a lengthy process that included the publication of a proposed non-compete clause rule in January 2023, which received over 26,000 public comments, with the majority expressing support. The agency estimated that around one in five American workers, or approximately 30 million workers, are subject to non-compete agreements. The legal arguments raised by the plaintiffs centered on the FTC’s authority to issue substantive rules and retroactively invalidate non-compete clauses without individualized consideration.
Judge J. Campbell Barker granted the FTC’s motion to apply the first-to-file doctrine, resulting in a stay in the Chamber of Commerce lawsuit. The first-to-file rule prioritizes the first party to file over matters filed afterwards, and since both lawsuits were filed in different districts in Texas, they would likely end up in the same appellate court. The Chamber and other parties involved now have the option to intervene or join the existing cases, with no immediate comments from the plaintiffs or the FTC on the stay. The case is Chamber of Commerce of the U.S. v. FTC (E.D. Tex., No. 6:24-cv-00148).
The implications of these legal challenges and the resulting stay are significant for businesses, workers, and the regulatory authority of the FTC. The outcome of these cases could have a lasting impact on the use of non-compete agreements in the professional services industries and beyond. Businesses seeking to protect their intellectual property and retain talent are closely watching the developments in these lawsuits. The stay issued by Judge Barker has temporarily halted the Chamber of Commerce’s lawsuit, but the legal battle is far from over.
The joint effort by various business organizations to challenge the FTC’s non-compete ban reflects the broader concerns within the business community about government regulation and its impact on their operations. The legal arguments presented in the lawsuits highlight the complexity of the issue and the different perspectives on the role of non-compete agreements in the economy. As the cases progress through the legal system, the ultimate decision will have implications for businesses, workers, and regulatory agencies alike. The stay issued by Judge Barker has added a new dimension to the legal battle over non-compete agreements and the FTC’s regulatory authority.
