Judge blocks Federal Trade Commission’s ban on noncompete agreements

Key takeaways:

• A federal judge ruled that the FTC lacks the authority to ban most noncompete clauses.
• An FTC spokesperson said the agency is “seriously considering” an appeal of the ruling.

A federal judge has blocked the Federal Trade Commission’s ban on new noncompete agreements with all workers in for-profit organizations.

United States District Judge Ada E. Brown, from the Northern District of Texas, ruled that the Federal Trade Commission (FTC) “lacks substantive rulemaking authority with respect to unfair methods of competition” while calling the ban “arbitrary and capricious,” in her decision.

“The rule is based on inconsistent and empirical evidence, fails to consider the positive benefits of noncompete agreements and disregards the substantial body of evidence supporting these agreements,” she said.

Under the ban, which was set to go into effect on Sep. 4, existing noncompetes would have no longer been enforceable for most workers, according to an FTC press release from April.

The ban would have allowed companies to maintain noncompete agreements with senior executives who earn more than $151,164 annually and are in policy-making positions. Less than 0.75% of workers qualify for this, the agency noted.

The FTC added that noncompete agreements are an “an unfair method of competition,” a violation of Section 5 of the FTC Act and often prevent workers from starting a new job or business.

The agency estimated that around 30 million workers — or one in five people in the U.S. — are subject to a noncompete agreement. It expected the rule to increase earnings for the average worker by $524 a year and lower health care costs by $194 billion over the next decade.

Several physician organizations, including the ACP and American Academy of Family Physicians, had voiced their opposition to noncompete agreements and applauded the ban.

In a statement to ABC News, Victoria Graham, an FTC spokesperson, said that the FTC is “seriously considering a potential appeal” of the ruling.

“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,” Graham said.

In a press release, U.S. Chamber of Commerce President and CEO Suzanne P. Clark called the ruling a major victory for workers and businesses and said the ban “was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage.”

“We remain committed to holding the FTC — and all agencies — accountable to the rule of law, ensuring American workers and businesses can thrive,” she said.

References:

• Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business and Longview Chamber of Commerce v. Federal Trade Commission. Available at: https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rj8_52.B4gYs/v0. Accessed Aug. 22, 2024.
• FTC announces rule banning noncompetes. Available at: https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes. Published April 23, 2024. Accessed Aug. 22, 2024.
• FTC ban on worker noncompete agreements blocked by federal judge. Available at: https://abc7news.com/business/ftc-ban-on-worker-noncompete-agreements-blocked-by-federal-judge/15213865/. Published Aug. 21, 2024. Accessed Aug. 22, 2024.
• Noncompetes: What you should know. Available at: https://www.ftc.gov/news-events/features/noncompetes. Accessed Aug. 22, 2024.
• U.S. Chamber wins lawsuit over FTC noncompete agreements ban. Available at: https://www.uschamber.com/lawsuits/u-s-chamber-wins-lawsuit-over-ftc-noncompete-agreements-ban. Published Aug. 20, 2022. Accessed Aug. 21, 2024.