Court Overturns Ban on Noncompete Agreements

Following a decision from the U.S. District Court for the Northern District of Texas ruling that the Federal Trade Commission (FTC) exceeded its legal authority in issuing its sweeping ban on noncompete agreements, the International Franchise Association (IFA) issued the following statement:

"We applaud the decision by the Northern District of Texas vacating the FTC's unlawful noncompete rule," said Michael Layman, IFA senior vice president of government relations and public affairs. "Using the precedent from the Supreme Court decision overturning the Chevron doctrine, the ruling not only delivered the death knell to the FTC's attempt to expand its rulemaking authority, but also agreed with the arguments raised by IFA in its amicus brief filed in the case that the rulemaking record, fraught with a lack of empirical data, does not allow for such a sweeping rule. The decision is a win for franchised small businesses and their right to independently operate."

In May 2024, IFA filed an amicus brief challenging the rule arguing, "The FTC's noncompete rule is arbitrary and capricious, and the FTC did not have the authority to issue the rule at all, much less in the manner it did."

In April 2023, IFA submitted comments on the proposed rule, urging the FTC to avoid extending the noncompete ban to franchise agreements, saying, "A blanket ban on noncompete clauses in franchise agreements would be extremely damaging to the franchise business model, encourage breaches of contract and hurt small business owners that depend on the viability of the franchise system to protect their equity in their franchised businesses."

While the final rule did not apply to franchise agreements, IFA joined more than 280 organizations in opposition to the proposed rule and the FTC's authority on the issue, saying, "We strongly oppose the proposal because noncompetes serve vital business and employee interests and because the FTC lacks legal authority to issue the proposed rule."