A federal judge in Texas today derailed the Federal Trade Commission’s ban on noncompete agreements, blocking the ban from taking effect in September as planned.
In a 27-page opinion, District Judge Ada Brown said that the FTC didn’t have the authority to make such decisions, calling the rule “arbitrary and capricious.” Brown added that the rule “would cause irreparable harm.”
In 2023, the FTC first proposed the rule, which would have made it harder for companies to demand by law that former workers can’t work for a rival company for a certain amount of time, thereby preventing them from possibly sharing the knowledge and trade secrets they’d acquired from the previous firm. At the time, the agency said employees deserved the freedom to switch jobs and businesses deserved access to the wider talent pool.
In 2024, the agency said it had determined noncompete clauses were “an unfair method of competition and therefore a violation of Section 5 of the FTC Act.” The rule was retroactive, meaning noncompete agreements currently held could be scrapped, except in some cases with high-earning company executives.
The FTC believes that banning these agreements would over the next ten years or so increase employees’ earnings by at least $400 billion. The agency said about 30 million Americans are currently being stifled in their careers by such an agreement.
Companies subsequently sued the FTC in Florida and Pennsylvania. In the former, the court granted a retirement community a preliminary injunction, stating that the FTC could not enforce the ban. In the Pennsylvania lawsuit launched by a tree company, the court concluded that the firm failed to show how the clause was damaging to its business.
“We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages,” FTC spokeswoman Victoria Graham said in a statement to media. “We are seriously considering a potential appeal, and today’s decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.”