US judge strikes down FTC ban on non-compete agreements

(Reuters) – A federal judge in Texas on Tuesday blocked from taking effect a U.S. Federal Trade Commission rule that would ban agreements typically signed by workers not to join their employers’ rivals or launch competing businesses.

U.S. District Judge Ada Brown in Dallas said the FTC, which enforces federal antitrust laws, does not have the authority to ban practices it considers unfair methods of competition by adopting sweeping rules.

Judge Brown temporarily blocked the rule in July while she considered a bid by the U.S. Chamber of Commerce, the nation’s largest business lobby, and tax services firm Ryan to overturn it entirely. The rule was to take effect on September 4.

Judge Brown in his ruling said that even if the FTC had the power to adopt the rule, the agency had not justified banning virtually all non-compete agreements.

“The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition … rather than targeting specific and harmful non-competes renders the Rule arbitrary and capricious,” wrote Judge Brown, appointed by former Republican President Donald Trump. .

An FTC spokeswoman said the agency was disappointed by the ruling and was “seriously considering a potential appeal.”

“Today’s decision does not prevent the FTC from addressing non-competes through enforcement actions on a case-by-case basis,” she said in a statement.

The Chamber of Commerce did not immediately respond to a request for comment.

The Democratic-controlled FTC approved the ban on non-compete agreements in a 3-2 vote in May. The commission and proponents of the rule say the agreements are an unfair restraint of competition, violate U.S. antitrust law and suppress wages and worker mobility.

About 30 million people, or 20 percent of American workers, have signed noncompetes, according to the FTC.

The commission often adopts rules targeting specific industries, such as requiring telemarketers to make certain disclosures or requiring gas stations to display fuel ratings, but it is unusual for the agency to enact bans on more widespread business practices.

The business groups have argued that Congress never intended to give the FTC those broad powers and that the non-compete ban will make it difficult to protect trade secrets and other confidential information.

Last week, a federal judge in Florida ruled that the ban was probably invalid and blocked it from being applied to a real estate developer. But a judge in Philadelphia reversed in July, finding that the FTC reasonably concluded that non-competes are practically never justified.