Non-compete Agreement Ban Blocked, FTC Expresses Disappointment

Weeks before it was set to take effect, the non-compete agreements ban was recently blocked by a federal court in Texas. FTC’s non-compete ban has been met with significant contention ever since it was initially announced, the resistance primarily led by the U.S. Chamber of Commerce. 

The non-compete agreement court ruling was brought by Judge Ada Brown of the U.S. District Court for the Northern District of Texas, and she stated that the “role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do.” According to the ruling, the FTC has exceeded its authority by attempting to ban non-competes nationwide and its enforcement has now been effectively overturned. 

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Non-compete Agreements Ban Blocked by Judge

The U.S. Federal Trade Commission announced a ban on non-compete agreements across the U.S. on April 23, 2024, and the ban was expected to go into effect on September 4, 2024. This non-compete ban ruling would forbid employers from restricting employees from seeking alternative employment at a competitor firm or starting their own business in the same industry. 

The FTC believed that these contracts were “unfair” methods used by employers to prevent employees from seeking work and continuing their careers even after they left, or were removed, from an organization. Non-compete clauses were frequently added to employment contracts at the start of an employee’s tenure and they were designed to prevent workers from misusing proprietary information for their own benefit or for the benefit of a competitor. 

The non-compete agreements ban being blocked has little to do with the legitimacy of such agreements or the need for them, and more to do with whether the FTC has the authority to issue the non-compete ban. According to the judge, the FTC may be able to enforce federal antitrust laws, but their authority does not extend to issue a blanket ban on all non-compete agreements. 

The judge had temporarily blocked FTC’s non-compete rule back in July for a small number of employers but had left the door open for further consideration of the case made by the U.S. Chamber of Commerce and tax service firm Ryan. Elaborating on the decision, she said “The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition…instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.”

FTC Response to the Non-compete Ban Ruling

The FTC is understandably disappointed by the non-compete agreements ban block that has been enforced. The federal organization has persistently lobbied for the workers’ rights to find workers without restrictions. According to their estimates, 20% of the U.S. workforce, or around 30 million people, have had to sign non-compete clauses, which means that these agreements are a persistent issue across the country. 

The rules of the FTC’s non-compete ban would apply to all workers, including senior executives, and considering that it was an “unfair method of competition,” those who chose to enforce it would be in violation of Section 5 of the FTC Act. Existing non-competes with senior executives would have remained in force but existing non-competes with other workers would no longer have been enforceable after September 4. 

Supporters of the ban on non-competes believe such clauses put a great strain on workers’ mobility within their careers and discourage competition, which falls within the purview of the FTC’s regulation of antitrust laws. According to Reuters, FTC spokesperson Victoria Graham said the agency was “seriously considering a potential appeal” after the disappointing ruling.

“A Significant Win” for the U.S. Chamber of Commerce

The U.S. Chamber of Commerce, which has repeatedly highlighted the FTC’s lack of authority to ban non-competes, has claimed the ruling as a victory in their favor. The group believes that the government should not try to overregulate businesses and overextend its reach, and the FTC’s ban was an example of such interference. 

“This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions. A sweeping prohibition of non-compete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage,” Chamber President and CEO Suzanne Clark said in a statement to CNN.

Despite the non-compete agreement court ruling, the FTC states that it will continue to address non-competes on a case-by-case basis to resolve contracts that are brought to their notice. 

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