A federal judge in Texas has blocked a Federal Trade Commission (FTC) rule that would have banned employers from requiring their workers to sign non-compete agreements. The ban was set to go into effect nationwide on September 4, but now it is effectively blocked. The judge ruled that the FTC does not have the authority to ban such practices and deemed the rule arbitrary and capricious. The ban has been set aside by the court and will not be enforced.
The judge, Ada Brown in Dallas, had previously temporarily blocked the rule in July for a small number of employers while considering a bid by the US Chamber of Commerce and a tax service firm to strike it down entirely. Brown’s ruling stated that even if the FTC had the power to adopt the rule, the agency had not justified banning virtually all noncompete agreements. The lack of evidence as to why such a sweeping prohibition was necessary rendered the rule arbitrary and capricious.
An FTC spokesperson expressed disappointment with the ruling and stated that the agency is considering a potential appeal. The US Chamber of Commerce, on the other hand, celebrated the decision, calling it a win against government micromanagement of business decisions. The ban on noncompete agreements was seen as an unlawful extension of power that would have put American workers, businesses, and the economy at a competitive disadvantage.
The FTC approved the ban in a 3-2 vote in May, with the commission and supporters of the rule arguing that noncompete agreements are unfair restraints on competition that violate antitrust laws, suppress workers’ wages, and limit mobility. Approximately 30 million people, or 20% of US workers, have signed noncompete agreements, according to the FTC. The commission typically targets specific industries with its rules but rarely enacts bans on more widespread business practices.
Business groups have contended that Congress never intended to give the FTC such broad powers and that banning noncompetes will make it difficult to protect trade secrets and other confidential information. In recent rulings, a federal judge in Florida deemed the ban likely invalid and blocked it from being applied to a real estate developer, while a judge in Philadelphia sided with the FTC in July, finding that noncompetes are virtually never justified. The debate over noncompete agreements continues as the legal landscape and enforcement at a federal level remain uncertain.
