A federal judge in Texas has blocked a rule by the US Federal Trade Commission that would have banned employers from requiring their workers to sign non-compete agreements. The ban, which was set to go into effect nationwide on September 4, has now been effectively halted by the ruling. US District Judge Ada Brown in Dallas determined that the FTC does not have the authority to ban practices it deems unfair methods of competition through broad rules. The judge declared the Non-Compete Rule as arbitrary and capricious, and set it aside from taking effect.
Brown had initially put a temporary block on the rule in July for a limited number of employers while she considered a request by the US Chamber of Commerce and tax service firm Ryan to eliminate the rule entirely. In her ruling, Brown stated that even if the FTC had the power to implement the rule, they had not adequately justified why virtually all noncompete agreements should be banned. She criticized the lack of evidence provided by the commission in targeting specific harmful non-competes, deeming the rule arbitrary and capricious.
A spokesperson for the FTC expressed disappointment with the ruling and mentioned the possibility of appealing the decision. The US Chamber of Commerce, on the other hand, celebrated the ruling as a significant win against government interference in business decisions. The Chamber emphasized that the ban on noncompete agreements would have put American workers, businesses, and the economy at a competitive disadvantage. The Democratic-controlled FTC had approved the ban on noncompetes in a close 3-2 vote in May, citing concerns about the impact of these agreements on competition and suppression of workers’ wages.
Approximately 30 million people, or 20% of US workers, have signed noncompete agreements, according to the FTC. While the commission often enforces rules targeting specific industries, the action taken against noncompetes is seen as unusual. Business groups argue that the FTC does not have the authority to enact broad bans on business practices, and that noncompetes are necessary for safeguarding trade secrets and confidential information. Recent rulings in Florida and Philadelphia have shown mixed results, with judges differing on the legitimacy of the ban.
Overall, the ruling by Judge Brown in Texas has effectively blocked the ban on noncompete agreements from taking effect nationwide. The decision highlights the ongoing debate over the FTC’s authority to regulate business practices, especially in cases where broad rules are adopted. With the potential for appeals and further legal challenges, the future of noncompete agreements and their impact on competition and workers’ rights remains uncertain.
