A federal court has partially halted the Federal Trade Commission’s (FTC) near-total ban on noncompete agreements.

On July 3, the U.S. District Court for the Northern District of Texas enjoined the final rule’s implementation, but only for the plaintiffs named in the case. The rule is set to take effect on Sept. 4, 2024, pending further action by the court. And more is coming.

The prospect of the rule going into effect presented a mixed bag of challenges and opportunities for the behavioral health industry. On one hand, providers would be more able to acquire hard-to-get employees who were previously locked out of certain jobs or markets by noncompete agreements. On the other hand, they may lose a legal tool that encourages retention and discourages ex-employees competing with them.

The court’s order states it “intends to rule on the ultimate merits of this action on or before Aug. 30, 2024.”

The plaintiff, Ryan LLC, a tax services provider, and several plaintiff-intervenors, including the U.S. Chamber of Commerce, sued the FTC on April 24, the day after the FTC’s commissioners voted to approve the final rule.

The judge’s partial injunction of the rule includes themes relevant to the now defunct legal practice — whether or not the FTC exceeded its statutory authority with respect to the noncompete rule.

On June 28, the U.S. Supreme Court struck down the practice of deferring to regulatory agencies’ interpretation of statutes when they are ambiguous or silent on a matter. That was called the Chevron doctrine.

However, the noncompete ruling goes deeper than the lengths a federal agency can go when the law is mum or vague on an issue. The ruling questions whether or not the FTC has the authority to promulgate anything more than housekeeping rules.

“The issue presented is whether the FTC’s ability to promulgate rules concerning unfair methods of competition includes the authority to create substantive rules regarding unfair methods of competition,” the ruling states. “[A]fter reviewing the text, structure, and history of the [Federal Trade Commission Act], the Court concludes the FTC lacks the authority to create substantive rules through this method.”

The court wrote further: “The court concludes the commission has exceeded its statutory authority in promulgating the noncompete rule, and thus plaintiffs are likely to succeed on the merits.”