A federal judge partially blocked the Federal Trade Commission's (FTC) rule on Wednesday that would prohibit agreements often signed by employees to refrain from joining competitors or starting competing businesses, following opposition from business and trade groups.
FTC's Non-Compete AgreementsAccording to the FTC, roughly 30 million U.S. workers are subject to non-compete agreements, which restrict competition, contravene U.S. antitrust laws, and limit wages and worker mobility. To end this, the Democratic-controlled agency voted 3-2 to approve a ban on non-compete agreements, which FTC Chair Lina M. Khan believes could create over 8,500 new startups annually, an FTC press release said.
California, Minnesota, North Dakota, and Oklahoma are among the states that have already implemented bans on non-compete agreements, and twelve other states have enacted laws restricting their use.
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Opposition to The Non-compete Agreements
Ryan LLC, a tax services firm based in Dallas, filed a lawsuit to block the rule, accusing the FTC of exceeding its statutory authority by categorizing all non-compete agreements as unfair and anti-competitive shortly after the FTC voted narrowly to ban non-compete agreements for nearly all workers in the United States. The opposition was supported by various organizations representing various American businesses, including the Business Roundtable, the U.S. Chamber of Commerce, and the Texas Association of Business.
In a written decision, U.S. District Judge Ada Brown in Dallas stated that the FTC did not have the authority to establish broad rules that prohibit practices it considers unfair methods of competition, Reuters reported.
Brown, appointed by Republican President Donald Trump, halted the FTC from enforcing the rule against a coalition of business groups, including the U.S. Chamber of Commerce and tax service firm Ryan, declining their request for a nationwide injunction, citing uncertainty about its appropriateness, and committed to issuing a final ruling by August 30, shortly before the rule's implementation date.
FTC spokesman Douglas Farrar emphasized the agency's confidence in its authority to implement the rule, advocating for eliminating unlawful non-compete agreements, which reduce innovation, hinder economic growth, trap workers, and compromise economic freedom for Americans, NPR News reported.
Daryl Joseffer, chief counsel of the Chamber's litigation arm, characterized the ruling as a significant victory in the Chamber's opposition to government interference in business decisions, arguing that the FTC's comprehensive prohibition of non-compete agreements exceeds the agency's constitutional and statutory authority.
In their lawsuits, Ryan and the Chamber assert that the FTC lacked the authority to implement the ban on non-compete agreements, arguing that Congress granted the agency only limited powers to make rules.
On Wednesday, Brown expressed skepticism about the rule's validity, stating that the FTC had not adequately justified the broad and almost complete ban on non-compete agreements. Brown criticized the rule for imposing a uniform approach without a specified end date, which, in her view, failed to establish a logical connection between the findings and the decision made.
