FTC Ban on Worker Noncompete Agreements Delayed by Judge

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A federal judge delayed implementation of the US Federal Trade Commission’s near-total ban on noncompete agreements, the first salvo in the high-stakes legal fight over how much freedom workers should have to switch jobs within an industry.

US District Judge Ada Brown in Dallas sided with the US Chamber of Commerce and a Texas-based tax firm that claimed the agency lacks authority to craft rules defining unfair methods of competition. The groups warned the unprecedented rule would invalidate 30 million employment contracts in a move that “amounts to a vast overhaul of the national economy.”

The ban was set to take effect Sept. 4, but it will now be on hold until August while the judge considers the merits of the lawsuit by the groups that seek to permanently strike the rule from the books.

Brown said in her ruling Wednesday that the challenge to the measure is “likely to succeed on the merits,” and that the public interest weighed in favor of temporarily blocking the rule.

The FTC approved the new rule in April, arguing that noncompete agreements unfairly block workers from switching jobs and undermine labor competition. The ban is backed by labor organizations AFL-CIO and the Service Employees International Union, Democratic senators and attorneys general from California, Illinois and 17 other states.

“The FTC stands by our clear authority, supported by statute and precedent, to issue this rule,” Douglas Farrar, a spokesperson for the agency, said in a statement. “We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty.”

The rule would ban most noncompete agreements, including those of senior executives. Existing agreements for executives who earn more than $151,164 a year in a “policy making position” would remain in place under the FTC’s ban, while those binding lower-level workers would become unenforceable.

Business groups argue the FTC’s rule is overly broad and limits the ability of companies to protect confidential information. The ban would impact businesses and people across the workforce — everyone from doctors to tax professionals to hair stylists — and shift the balance of power between bosses and staff.

“This ruling is a big win in the Chamber’s fight against government micromanagement of business decisions,” the Chamber of Commerce’s chief counsel Daryl Joseffer said in a statement. “The FTC’s blanket ban on noncompetes is an unlawful power grab that defies the agency’s constitutional and statutory authority and sets a dangerous precedent where the government knows better than the markets.”

About one in five Americans is bound by a noncompete agreement, a March 2022 Treasury Department report found. In some industries, including technology and health care, it’s even higher. Studies found as many as 45% of primary care physicians and 35% to 45% of tech workers are bound by noncompete clauses.

President Joe Biden supports the ban and his administration has made competition issues a key part of his economic policy.

Brown’s decision could be appealed to the conservative US 5th Circuit Court of Appeals in New Orleans. The appeals court has become a favorite for conservative opponents of Biden’s policies related to federal regulatory power, guns, abortion and social media regulation.

The case is Ryan v. Federal Trade Commission, 3:24-cv-00986, US District Court, Northern District of Texas (Dallas).

Top photo: The Federal Trade Commission (FTC) headquarters in Washington, DC, US, on Friday, Feb. 17, 2023. A slew of business groups joined the US Chamber of Commerce in opposing the FTC’s proposal to ban non-compete agreements, arguing it would limit their ability to protect confidential information. Photographer: Ting Shen/Bloomberg.