A Texas federal judge has blocked the Biden administration’s attempt to ban worker noncompete agreements, delivering a significant blow to a sweeping rule set by the Federal Trade Commission (FTC). Judge Ada Brown in Dallas ruled that the FTC, charged with enforcing federal antitrust laws, overstepped its authority by imposing a blanket ban on these agreements, which prevent employees from jumping ship to rival companies or starting their own competing ventures.
In her ruling, Brown questioned the FTC’s justification for such an extensive prohibition, stating that the agency failed to provide sufficient evidence for its decision. She labeled the rule as “arbitrary and capricious,” suggesting that it lacked the necessary precision in targeting genuinely harmful noncompetes.
The rule, initially set to take effect on September 4, had been temporarily paused by Brown in July after the U.S. Chamber of Commerce and tax service firm Ryan challenged its legality. The judge’s latest decision marks a significant victory for these business groups, who argued that the FTC’s ban would make it difficult to protect trade secrets and confidential information.
The FTC, under Democratic leadership, had approved the ban in a narrow 3-2 vote, arguing that noncompete agreements stifle competition, violate antitrust laws, and hinder workers’ ability to negotiate better wages and job opportunities. The agency estimates that around 30 million U.S. workers, or 20% of the workforce, are bound by these agreements.
Despite the setback, the FTC has not conceded defeat. Spokesperson Victoria Graham expressed disappointment with the ruling and indicated that the agency is considering an appeal. She also emphasized that the decision doesn’t prevent the FTC from pursuing noncompete cases on an individual basis.
This ruling adds to the growing legal debate over the future of noncompete agreements. While a federal judge in Florida recently declared the ban likely invalid, blocking its application to a real estate developer, a judge in Philadelphia previously sided with the FTC, affirming that noncompetes are rarely justified.
As the legal landscape shifts, the fate of noncompete agreements remains uncertain, leaving millions of workers and businesses in a state of flux.
