Federal Judge Blocks F.T.C. Ban on Noncompete Agreements

Federal Judge Blocks F.T.C. Noncompete Agreement Ban

A federal judge made a significant ruling on Tuesday by upholding a challenge against the Federal Trade Commission’s (F.T.C.) proposed ban on noncompete agreements. This injunction prevents the ban from being implemented as scheduled in September. Judge Ada Brown, presiding over the U.S. District Court for the Northern District of Texas, concluded that the antitrust agency did not possess the authority to issue substantive regulations concerning unfair methods of competition, which includes the contentious noncompete rule aimed at limiting companies’ abilities to restrict their employees’ future employment opportunities.

This initiative to eliminate noncompete agreements is part of the broader strategy of the Biden administration to combat practices viewed as anticompetitive, which regulators argue stifle worker mobility and economic opportunity. Judge Brown had previously issued a temporary injunction against the ban in July, but her latest decision solidifies that ruling, making it a permanent injunction applicable nationwide.

The F.T.C. estimated that abolishing noncompete agreements could potentially boost workers’ earnings by at least $400 billion over the next decade. These agreements currently impact approximately one in five American workers, translating to around 30 million individuals, according to the agency, which focuses on antitrust and consumer protection mandates.

Victoria Graham, a spokeswoman for the F.T.C., expressed disappointment in Judge Brown’s ruling, emphasizing the agency’s commitment to “continuing the fight against noncompetes that limit the economic freedom of diligent Americans, hinder economic growth, stifle innovation, and suppress wages.” She further noted, “We are actively considering a potential appeal, and today’s decision does not inhibit the F.T.C. from pursuing action against noncompetes through case-by-case enforcement.”

The legal challenge against the noncompete rule was initiated by a tax firm named Ryan, which filed a lawsuit just hours after the F.T.C. voted 3 to 2 in April to implement the regulation. Subsequently, the U.S. Chamber of Commerce joined the lawsuit, alongside the Business Roundtable and two business organizations from Texas.

• The Chamber of Commerce and other business groups have argued that the F.T.C. lacks both constitutional and statutory authority to enforce such a rule.
• Ryan characterized the rule as “arbitrary, capricious and otherwise unlawful,” a sentiment that resonated with Judge Brown’s findings.
• Business advocates have claimed that the proposed ban could undermine their ability to safeguard trade secrets and confidential information.

In reaction to the ruling, G. Brint Ryan, the CEO of Ryan, labeled the F.T.C. initiative as “continuing overreach and overregulation” by the federal government, expressing satisfaction that they successfully halted this regulatory expansion.

Conversely, the three Democrats on the five-member F.T.C. argue that the agency is legally empowered to define unfair methods of competition under the Federal Trade Commission Act of 1914, the foundational statute that established the F.T.C.

In a related case, a federal judge in Pennsylvania previously opted not to block the rule. These contrasting judicial decisions regarding the ban may open the door for review by higher courts. Kevin Goldstein, an antitrust partner at Winston & Strawn, remarked, “While many businesses may breathe a sigh of relief, the uncertainty persists as this legal battle now shifts to the appellate courts.”