Federal Judge Partially Blocks FTC Ban on Worker Noncompete Agreements

People cross the intersection of SW 8th Steet and Brickell Ave. at the Brickell neighborhood, known as the financial district, in Miami, Fla., on Feb. 23, 2023. (Marco Bello/REUTERS)

A Texas federal judge on July 3 partially blocked the Federal Trade Commission’s (FTC) rule banning worker noncompete agreements from taking effect this fall among a handful of employers, agreeing with business groups that the agency had exceeded its statutory authority in issuing the rule.

“The text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition,” Judge Ada Brown of the US District Court for the Northern District of Texas wrote in her ruling.

She stressed that the “role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do.”

Ultimately, the judge blocked the FTC from enforcing the rule against the biggest business lobby in the United States—the U.S. Chamber of Commerce—Dallas, Texas-based tax firm Ryan LLC, the Business Roundtable, and other business groups, all of whom had filed a lawsuit against the rule.

“Plaintiffs are likely to succeed on the merits,” the judge found.

Still, Judge Brown stopped short of banning the rule from going into effect nationwide—as the business groups had requested—saying it was not clear whether such an order was appropriate.

“While this order is preliminary, the Court intends to rule on the ultimate merits of this action on or before August 30, 2024,” Judge Brown wrote.

Noncompete Agreements Often ‘Exploitative’

The ruling comes after the FTC voted 3-2 in April to impose a near-total ban on the vast majority of non-compete agreements typically included in worker contracts and prevent tens of millions of employees from working for rivals or starting a competing business after they leave their jobs.

The ban, which would cover most existing employment agreements and ban companies from including them in all future agreements, was set to take effect on Sept. 4.

For senior executives, existing noncompete agreements will stay in force beyond the effective date.

In announcing the ban, the FTC claimed such agreements are often exploitative and can force workers to stay in jobs they want to leave or can burden workers with other significant harms and costs.

Roughly 30 million people, or 20 percent of U.S. workers, have signed noncompetes, according to the FTC.

The U.S. Chamber of Commerce, Ryan LLC, the Business Roundtable, and others quickly sued over the rule, alleging in an April 23 lawsuit that the FTC, which enforces federal antitrust laws, lacked authority to issue the ban.

They further argued the rule imposes an extraordinary burden on business owners seeking to protect their intellectual property.

Federal Trade Commission seal is seen at a news conference at FTC headquarters in Washington, on July 24, 2019. (Yuri Gripas/Reuters)

FTC Defends Ban

Defending the ban, the FTC has argued it will protect the fundamental freedom of workers to change jobs, increase innovation, and boost worker earnings by as much as $524 per year.

The rule will also lead to the creation of more than 8,500 new businesses each year and an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years, according to the agency.

The agency has also argued it has the authority to issue the ban because noncompete agreements violate antitrust laws, meaning they fall within the agency’s broad powers to police anti-competitive conduct.

In a statement following the ruling, John Smith, Ryan’s Chief Legal Officer and General Counsel, welcomed the court’s decision, calling it “an important step toward invalidating a rule that burdens not only Ryan, but also Ryan’s clients, and multitudes of employers and employees across America.”

“We’re grateful that the U.S. Chamber of Commerce and Texas Association of Business joined our case shortly after we filed it,” Mr. Smith said. “We appreciate the many organizations—which together represent a vast swath of the American economy—that filed briefs supporting Ryan’s position.”

The Epoch Times has contacted an FTC spokesperson for comment.

Tom Ozimek and Reuters contributed to this report.