Federal Judge Hands Down Disappointment to Biden Administration Ban on ‘Noncompete’ Agreements

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The Federal Trade Commission’s (FTC) attempt to ban noncompete agreements has hit a significant roadblock.

On Tuesday, a federal judge in Texas blocked the FTC’s rule from taking effect, dealing a blow to the agency’s efforts to reshape labor practices across the United States.

The rule, which would have prohibited agreements that prevent workers from joining competitors or starting rival businesses, was set to go into effect on September 4. However, U.S. District Judge Ada Brown in Dallas put a stop to it, arguing that the FTC lacks the authority to implement such broad-reaching rules.

Judge Brown, who was appointed by former President Donald Trump, explained her decision: “The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition … instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.”

The ruling comes as a victory for the U.S. Chamber of Commerce and tax service firm Ryan, who had challenged the FTC’s rule.

Suzanne Clark, President and CEO of the Chamber of Commerce, celebrated the decision, stating, “This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions.”

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To understand the scope of this issue, it’s worth noting that about 30 million people, or 20% of U.S. workers, have signed noncompete agreements. The FTC and supporters of the ban argue that these agreements unfairly restrict competition and suppress workers’ wages and job mobility.

However, business groups contend that noncompetes serve a legitimate purpose in protecting trade secrets and confidential information. They argue that Congress never intended to give the FTC such broad powers to regulate business practices across all industries.

The FTC, for its part, expressed disappointment with the ruling. Victoria Graham, an FTC spokesperson, said the agency is “seriously considering a potential appeal.” She also pointed out that the decision “does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.”

This isn’t the only legal challenge the FTC’s rule has faced. In Florida, another federal judge recently ruled that the ban was likely invalid, while a judge in Philadelphia found in favor of the FTC’s position.

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These conflicting decisions suggest that the issue will likely be resolved at a higher court level.