A federal judge has issued an order that will block the Federal Trade Commission’s ban on noncompete agreements throughout the United States from taking effect as the agency intended on Sept. 4.
On Tuesday, Aug. 20, Dallas-based U.S. District Judge Ada Brown barred the FTC from enforcement, saying the regulators exceeded their statutory authority in issuing the rule and decrying the ban as arbitrary and capricious.
“The FTC’s promulgation of the rule is an unlawful agency action,” Brown said.
The decision comes following Brown’s July preliminary injunction that prevented enforcement against just the case’s plaintiffs, which include business groups such as the U.S. Chamber of Commerce and Ryan, a global tax services firm and software provider.
The FTC wanted any enforcement prevention limited to the plaintiffs, but Brown ruled instead to block the prohibition on noncompetes nationally, citing case law that led the judge to conclude that the legal issues with the ban “affect persons in all judicial districts equally.”
Brown’s ruling blocks the noncompete ban, but further legal complexities are likely. For one thing, an FTC appeal could be in the cards.
“We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages,” said FTC Spokesperson Victoria Graham in a statement to ABC News.
Further muddying the legal waters is a case in Pennsylvania federal court. In the Keystone State case, U.S. District Judge Kelley Brisbon Hodge last month denied a request from plaintiff ATS Tree Services to issue a stay and preliminary injunction that would have prevented the FTC from enforcing its ban on noncompete agreements at least temporarily.
Contrary to Brown, Hodge ruled that the FTC has the legal authority to promulgate the noncompete ban.
“Plaintiff has failed to establish a reasonable likelihood that it will succeed on the merits of its claims that the FTC lacks substantive rulemaking authority under its enabling statute, that the FTC exceeded its authority and that Congress unconstitutionally delegated legislative power to the FTC,” Hodge wrote in a memorandum. A final decision could be coming this autumn.
Still, a federal judge in Florida last week bolstered the cause of those who oppose the noncompete ban.
U.S. District Judge Timothy Corrigan issued an order that prevents the FTC from applying the rule to Properties of The Villages until a case the real estate developer brought against the FTC over its ban is adjudicated. The plaintiff claims the commission doesn’t have the power to adopt or enforce the rule.
Noncompetes have proven a controversial topic in the promotional products industry. Some industry pros say they’re necessary to protect businesses, while others argue they unfairly limit worker mobility and prevent professionals from making a living. A noncompete agreement prohibits workers from taking another job or starting a business in a profession that competes with their previous employer.
Brown’s Aug. 20 order in the Texas case came nearly two months after the U.S. Supreme Court issued a ruling that weakened federal agencies’ regulatory authority – a decision some legal experts say will make it even more difficult for the FTC to keep its noncompete ban on the books.
“The power has shifted to people challenging the FTC,” said Chuck Machion, senior vice president and senior counsel at ASI. More challenges to federal agencies’ regulations could be forthcoming in the wake of the Supreme Court ruling, legal analysts said.
The FTC banned noncompete agreements in April 2024, voiding existing clauses for all workers besides senior-level executives and preventing new noncompetes.
The FTC says about 30 million workers in America are subject to noncompete agreements. Banning them will generate more start-up businesses, lead to more patents and generally increase wages for workers, according to the FTC.
