A federal judge has slapped down the Federal Trade Commission’s near-total ban on noncompete agreements.
The ban, if ever made effective, could have wide-ranging impacts on business, especially for organizations with investor backing and large corporate structures.
It may also have an impact on the autism therapy space, though experts are mixed on the degree of that impact.
What happened
In April, the FTC’s board of commissioners approved a final rule that would ban noncompetes in most cases. Opponents to the rule filed suit the next day.
On Aug. 20, Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled that “the FTC exceeded its statutory authority in implementing the rule, and the
rule is arbitrary and capricious.” It granted the challengers’ motion to have the rule set aside.
The proposed ban’s prospects didn’t look good at the outset of the legal challenge by Ryan LLC and other advocacy organizations, including the U.S. Chamber of Commerce. Brown ruled in July to grant a partial injunction of the ban.
“Plainly read, the court concludes the FTC has some authority to promulgate rules to preclude unfair methods of competition,” Brown wrote in the memo and order ruling for the plaintiffs. “However, after 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 order also describes the provisions of the Federal Trade Commission Act as only enabling “housekeeping statute” and what other sections or federal procedural rulemaking calls “rules of agency organization procedure or practice” and not “substantive rules.”
The U.S. Chamber of Commerce said the ruling was a victory in fighting “government micromanagement of business decisions.” The FTC says it is considering an appeal on its website.
Why was this relevant for the autism therapy industry?
First, it helps to know just a little about the rule: It banned the creation and enforcement of noncompete agreements for all except highly paid executives and business owners who sell their stakes.
The autism therapy industry is over a decade into the arrival of middle market buyout private equity firms that have sought to grow platform companies via M&A and de novo growth. This has led to the development of several companies with large executive teams. This new corporate executive and investor class in autism therapy introduced several structures relevant to other segments of corporate America, like the noncompete.
But it’s not clear just how impactful noncompetes are in the autism therapy space.
“I think that when looking at what the FTC was seeking to accomplish, most of the impact in the autism space would have been in the executive suites, or in the private equity world vis-à-vis their concern regarding enforcing restrictive covenants post-acquisition: Most of the ABA providers do not require noncompete agreements of their RBTs and BCBAs,” Darren Patz, partner in the government affairs and public policy practice for DLA Piper LLP, told Autism Business News.
Still, a meaningful portion of autism therapy clinicians report being impacted by noncompetes.
The final rule includes citations of research from 2020 that found 33% of BCBA contracts contain noncompetes.
Follow-up research also found that, in 2023, 38% of BCBAs were in a role and 33% had previously worked in a role where a noncompete was relevant. That was higher than the national average, which was pegged at about 18% of workers. About 57% of BCBAs said they had to work in a different region, and 44% said they had to take a pay cut because of their noncompetes.
“While the FTC rule has an expansive definition of noncompete agreements and limited exemptions, noncompetes have not been widely enforced in the ABA space where access to health care remains the primary concern,” Daniel Unumb, president of the Autism Legal Resource Center LLC, told ABN. “Instead, a number of other mechanisms have been relied on for retention and related concerns.”
Now what?
Even if the FTC’s present efforts fail in court, increasing anti-big business sentiment in the U.S. could be fodder for legislative change. Polling by the Pew Research Center that 25% of Democrats or Republicans believe large corporations have a positive impact on the country.
And the legal battle remains in play. Yet even if the FTC ban survives this challenge, the U.S. Supreme Court’s elimination of the Chevron doctrine has made it all the easier to challenge federal rules.
“That said, I think it is worth noting that this is not the end of the road for the FTC; they will still be seeking to move the ball down the field in accomplishing their goals of banning most restrictive covenants for U.S. workers,” Patz said. “It has been my experience that when the government says they want to accomplish something, they are going to find a way to do this.
