Texas Judge Blocks FTC's Noncompete Agreement Ban, Citing Agency Overreach and Lack of Evidence

A federal judge in Texas has put a halt to a U.S. Federal Trade Commission (FTC) ruling that would have forbidden the common practice among employers of requiring employees to sign non-compete agreements barring them from joining rival companies or starting their own businesses in the same industry. This decision comes after a request from the U.S. Chamber of Commerce and tax service firm Ryan, who sought to completely overturn the rule that was set to take effect on September 4.

Legal Authority Questioned

U.S. District Judge Ada Brown, presiding in Dallas, argued that the FTC overstepped its legal authority by attempting to ban practices it considers unfair competition through broad regulations. She noted that even if the FTC possessed the power to enforce the rule, it had failed to substantiated its decision to prohibit essentially all non-compete contracts.

The judge criticized the FTC's arbitrary and sweeping prohibition, emphasizing its lack of evidence and reasoning behind the blanket injunction on non-compete agreements. Judge Brown pointed out that the Commission did not adequately demonstrate why it chose to impose such an expansive ban instead of targeting specific, harmful non-compete clauses.

Impact on Workers and Businesses

Back in May, the FTC, under Democratic control, had approved the ban on non-compete agreements after a contentious 3-2 vote. Proponents of the ban argue that these agreements create an undue restraint on competition, violate U.S. antitrust laws, and inhibit workers' wages and ability to change jobs. The FTC estimates that approximately 30 million individuals, or 20% of the U.S. workforce, are bound by such agreements.

Opponents of the ban argue that prohibiting non-compete agreements would undermine the protection of trade secrets and other sensitive business information. They contend that Congress never intended to grant the FTC such broad powers over business practices.