A Texas federal judge on Friday stayed a lawsuit by the U.S. Chamber of Commerce and other business groups challenging the Federal Trade Commission's near-total ban on employee noncompete agreements.
U.S. District Judge J. Campbell Barker in Tyler, Texas, in a written order said that under an informal court doctrine known as the "first to file rule," a nearly identical lawsuit that tax service firm Ryan filed against the FTC a day earlier should proceed first.
That is especially true because Texas-based Ryan, which filed its complaint in Dallas federal court, is a member of the Texas Association of Business, one of the co-plaintiffs in the Chamber's lawsuit, the judge wrote.
"A hypothetical ruling by this court enjoining the FTC from enforcing its rule against plaintiffs’ members would not align with a hypothetical judgment ... that Ryan’s challenges are not meritorious," Barker said.
An FTC spokeswoman declined to comment. The Chamber and the Texas Association of Business did not immediately respond to requests for comment. Other groups involved in the lawsuit include the Business Roundtable and the Longview Chamber of Commerce.
The Democrat-controlled commission approved the ban on agreements commonly signed by workers not to join their employers' rivals or launch competing businesses in a 3-2 vote last week.
The FTC and supporters of the rule say noncompete agreements are an unfair restraint on competition that violate U.S. antitrust law and suppress workers' wages and mobility.
Business groups and some Republicans have countered that noncompetes are a crucial tool for businesses to protect trade secrets, confidential information, and their investments in recruiting and training workers.
Ryan and the Chamber both claim in their lawsuits that the FTC lacks the legal authority to adopt rules banning conduct that it deems to be an unfair method of competition. They also say the rule violates the federal law governing agency rulemaking because the commission failed to consider narrower limitations on noncompetes, among other claims.
Ryan on Wednesday asked U.S. District Judge Ada Brown to issue a preliminary injunction and stay the rule's September effective date pending the outcome of the company's lawsuit. Brown, like Barker, is an appointee of Republican former President Donald Trump.
The FTC is also facing a challenge to its rule in Philadelphia federal court by a Pennsylvania-based tree trimming company.
The case is Chamber of Commerce of the United States of America v. Federal Trade Commission, U.S. District Court for the Eastern District of Texas, No. 6:24-cv-00148.
For the business groups: Jeff Wall of Sullivan & Cromwell; Michael Jones of Potter Minton; Tyler Badgley and Jordan Von Bokern of the U.S. Chamber Litigation Center
For the FTC: Rachael Westmoreland of the U.S. Department of Justice
Read more:
US bans worker 'noncompete' agreements as business groups vow to sue
US Chamber of Commerce sues FTC for ban on noncompete agreements
