Court Overturns FTC’s Noncompete Ban, IFA Hails Landmark Ruling as Victory

The International Franchise Association (IFA) has expressed strong approval of the recent decision by the U.S. District Court for the Northern District of Texas to vacate the Federal Trade Commission’s (FTC) rule banning noncompete agreements, a decision that the court determined exceeded the FTC’s legal authority. According to an August 2024 article on Franchising.com, the court’s ruling marks a significant victory for franchised small businesses, which the IFA has long advocated for in the face of what it considers overreach by the FTC.

Michael Layman, IFA’s senior vice president of government relations and public affairs, claims that the ruling is more than a rebuke to the FTC’s expanded rulemaking authority; he maintains that it is also an affirmation of the IFA’s concerns regarding the lack of empirical data supporting such a sweeping rule.

“We applaud the decision by the Northern District of Texas vacating the FTC’s unlawful noncompete rule,” Layman said. “The decision is a win for franchised small businesses and their right to independently operate.”

The IFA has been actively involved in opposing the FTC’s noncompete rule from the beginning. In May 2024, the organization filed an amicus brief challenging the rule, arguing that “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.” This stance was part of a broader effort by the IFA to protect the franchise business model, which it believed was under threat from the proposed rule.

In its April 2023 comments on the proposed rule, the IFA urged the FTC to refrain from extending the noncompete ban to franchise agreements, arguing, “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 version of the FTC rule did not apply to franchise agreements, the IFA continued to oppose the FTC’s authority to issue the rule, joining more than 280 organizations in expressing their concerns. The IFA asserted that “noncompetes serve vital business and employee interests and because the FTC lacks legal authority to issue the proposed rule.”

Overall, the court’s decision is seen as a critical affirmation of the franchise industry’s right to operate independently without undue interference from federal regulatory agencies. The ruling not only protects the interests of franchised small businesses but also underscores the importance of maintaining a balance between regulation and the preservation of essential business practices.

For more information on the FTC noncompete proposal and other franchise agreement issues, check out these related 1851 Franchise articles:

• The FTC’s Noncompete Ban: Implications for Franchises
• What the FTC Noncompete Proposal Could Mean for Franchising
• FTC Requests Public Comment Regarding Franchisee-Franchisor Relationships
• How to Avoid Legal Loopholes in Franchise Agreements