Judge blocks FTC ban on noncompetes

#Antitrust

This is not a surprise. The FTC's authority to issue the rule was dubious (at best). Also, the rule was not warranted (at least not a general and absolute ban)

"Federal judge partially blocks U.S. ban on noncompetes"https://t.co/CUGvAsZZ01

— Mario Zúñiga (@MZunigaP) July 3, 2024

A federal judge in Texas temporarily blocked on Wednesday a Federal Trade Commission (FTC) rule banning noncompete agreements, a new regulation that business groups have strenuously opposed. In a 33-page opinion, Judge Ada Brown found that the agency lacked the authority to issue the rule, which affects the inclusion of noncompete agreements in workers’ contracts. Brown’s order, limited to the plaintiffs, postpones the effective date of the rule, originally set for September 4, until the court reaches a decision on the case’s merits by August 30. The plaintiffs include Dallas-based tax consultancy Ryan LLC and the U.S. Chamber of Commerce.

TX court issues preliminary injunction re: FTC's nationwide non-compete rule (Ryan case)https://t.co/DQs7AObeAl

— Matt Marx (@marxmatt) July 4, 2024

The FTC rule could affect up to millions of workers outside the scope of the lawsuit once it takes effect, as some studies suggest up to one in five employees are bound by noncompete agreements. Noncompete agreements typically restrict workers from switching employers within their industry for specified periods and are used in various industries, including technology, hairstyling, medicine, and dance instruction, affecting both low- and high-wage earners.

🚨BREAKING: A rogue judge just temporarily blocked @FTC's broadly popular ban on noncompete clauses.@LeeHepner calls out radical judges for obstructing the Biden admin's pro-worker agenda and says it's time to end the practice of judge shopping👇https://t.co/nLowM0J2D8 pic.twitter.com/KcUyvxyrX7

— American Economic Liberties Project (@econliberties) July 3, 2024

In April, the FTC voted 3-2 to ban the agreements, with commissioners in the majority pointing to research indicating that such covenants suppress wages, stifle entrepreneurship, and disrupt labor markets. Critics of the rule, including business groups such as the U.S. Chamber of Commerce, argue that the agreements are vital for protecting proprietary information and investments in training.

Judge’s ruling on FTC authority

The Chamber and other business groups sued to block the rule immediately after its issuance, claiming the FTC lacked the authority to enact a regulation with such sweeping economic implications. The Chamber subsequently joined the case brought by Ryan LLC in the Northern District of Texas on April 23. Other business associations, including the Business Roundtable, the Texas Association of Business, and the Longview Chamber of Commerce, also joined the case. “This ruling is a big win in the Chamber’s fight against government micromanagement of business decisions,” Daryl Joseffer, chief counsel at the Chamber, said in a statement. “The FTC’s blanket ban on noncompetes 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 FTC said it is reviewing the decision and evaluating its next steps. “The FTC stands by our clear authority, supported by statute and precedent, to issue this rule,” Douglas Farrar, an FTC spokesman, said. “We will keep fighting to free hard-working Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty.” In reaching her decision, Judge Brown found that the plaintiffs “are likely to succeed on the merits” of their case, which argues the FTC exceeded its statutory authority in issuing the rule. She also sided with the plaintiffs in finding that the FTC’s issuance of the rule was not reasonable. “The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition — that prohibits entering or enforcing virtually all noncompetes — instead of targeting specific, harmful non-competes, renders the [rule] arbitrary and capricious,” Brown wrote.