FTC’s Non-compete Ban Delayed by a Federal Judge in Texas

The FTC’s non-compete ban has been delayed by a judge in Texas this week. Earlier this year, the Federal Trade Commission decided to take serious action against businesses forcing employees to sign non-competes as it believed the decision would “lead to new business formation growing by 2.7 percent per year, resulting in more than 8,500 additional new businesses created each year.” Workers across the country were in full support of the ban but many employers protested the move. Despite the resistance, the ban was expected to go ahead later this year, but Texas’ non-compete ruling has put a spoke in their wheel. The delay in the noncompete agreement ban will only apply to a small group but it is a significant interruption nonetheless.

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FTC Non-compete Ban Delayed by Texas Judge

In a written decision, U.S. District Judge Ada Brown announced that the FTC’s non-compete ban was invalid as the commission did not hold the authority to enforce the rule. The non-compete ban has been partially blocked which means it is a preliminary ruling pending a final decision. The block applies only to the specific coalition of businesses that had filed their own cases against the FTC. The coalition includes the likes of the U.S. Chamber of Commerce and tax services firm Ryan LLC, both groups that stood firmly against the FTC’s authority to enforce the ban. 

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

The FTC non-compete ban was introduced in April and it was expected to go into effect on September 4, 2024. Now that the noncompete ban has been blocked for a select few, another court ruling will occur on or before August 30, 2024, where the judge will make a final decision on blocking the ban. Again, the decision will be limited to the plaintiff (Ryan LLC) and the plaintiffs-intervenors, according to CNN. The judge explained the Texas non-compete ruling stating that she believed the FTC may not have the authority to execute the ban on businesses. However, she did refrain from delaying the FTC non-compete ban countrywide as she did not believe the plaintiffs-intervenors had sufficiently explained why the decision should be extended beyond them. 

The US Chamber of Commerce saw the Texas ruling as a win, standing by their belief that they were headed in the right direction. “This ruling is a big win in the Chamber’s fight against government micromanagement of business decisions. The FTC’s blanket ban on non-competes 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. The U.S. Chamber will continue to hold the FTC accountable in court,” the U.S. Chamber of Commerce Litigation Center Executive Vice President and Chief Counsel Daryl Joseffer said in a statement.

Why Is There Resistance To the FTC’s Ban on Non-competes?

Texas’ non-compete ruling is not the first instance of opposition the FTC has faced since they formalized the decision. The U.S. Chamber of Commerce was one of the biggest and most powerful opponents of the FTC’s decision, firmly holding that non-competes had existed for much longer than the FTC and had never been considered illegal until now. The move by the FTC has been repeatedly described as a “power grab” showcasing the commission’s desire to use it as a precedent to regulate and ban other business practices in the future. 

In its case filings against the FTC, the U.S. Chamber said, “The FTC’s action sets a dangerous precedent for government micromanagement and will harm employees, employers, and the economy.” Their drive to have the noncompete ban blocked is understandable to a degree, but it appears to focus more on the FTC’s authority to issue the ruling and not enough on why non-competes should not be banned. 

The FTC data on how banning non-competes could be good for the economy and could lead to the creation of new jobs has not been refuted. The FTC found that nearly 30 million workers in the U.S. or one in every five Americans is bound by a non-compete, which is a considerable number of workers under restriction. The FTC’s 90-day period for public comments reportedly received 26,000 comments with over 25,000 in favor of the decision. Many states like California and Oklahoma have already banned these agreements, but a federal rule would make it easier to enforce the rule more uniformly, forcing businesses to look for other alternatives to such contracts. 

If the FTC non-compete ban delay via the Texas ruling is not overturned, it could lead to an avalanche of other cases against the FTC as other businesses move to protest the upcoming ban. 

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