A federal judge struck down a Biden administration rule on Tuesday that banned employers from using noncompete agreements, which would have affected the contracts of millions of Americans.
U.S. District Court Judge Ada Brown for the Northern District of Texas ruled that the Federal Trade Commission’s (FTC) banning the entire category of noncompetes, rather than targeting “specific, harmful” sub-categories of the agreements, went beyond the commission’s mandate to police unfair methods of competition. The ban on the contracts that limit workers’ ability to move to rival firms, which was announced in April, was supposed to go into effect on September 4 and would have affected roughly 30 million American workers, according to the initial FTC press release.
“The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition — that prohibits entering or enforcing virtually all non-competes — instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious,” Brown wrote in her ruling.
A Texas federal judge on Tuesday permanently blocked the FTC’s looming ban on noncompete agreements in employment contracts, setting aside the regulation with a conclusion that it’s beyond the agency’s authority. https://t.co/6F2kVjBQyk
— Law360 (@Law360) August 21, 2024
“We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages,” an FTC spokeswoman told the Daily Caller News Foundation. “We are seriously considering a potential appeal, and today’s decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.”
The case was brought by tax services and software provider Ryan LLC, with backing from the Chamber of Commerce and other business advocacy groups, court documents show.
“The continuing overreach and overregulation from the federal government jeopardizes America’s economic liberty and diminishes the opportunity our country provides for all of us,” Chief Executive of Ryan LLC Brint Ryan said, according to The Wall Street Journal.
The FTC initially announced the rule on the grounds that increasing workers’ ability to switch jobs would promote competition, innovation and entrepreneurship by allowing employees to take competing job offers or start their own rival businesses.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina Khan said in the agency’s April press release. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
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