Federal judge partially blocks FTC’s noncompete order

A federal judge in Texas on Wednesday partially blocked a U.S. Federal Trade Commission rule that would have broadly banned agreements for employees not to hire rivals or start competing businesses. U.S. District Judge Ada Brown in Dallas said in a written decision that the FTC, which enforces federal antitrust laws, lacks the authority to adopt broad rules banning practices it considers unfair methods of competition.

About 30 million people, or 20% of U.S. workers, have signed noncompete clauses, according to the FTC. Brown, appointed by Republican former President Donald Trump, has blocked the FTC from enforcing the rule against a coalition of business groups, including the U.S. Chamber of Commerce, the nation’s largest business lobby, and tax consulting firm Ryan, pending the outcome of their combined lawsuits.

A judge rejected their request to block the rule nationwide, saying it was unclear whether such an order was appropriate. Brown said she would issue a final ruling by Aug. 30, days before the rule takes effect. FTC spokesman Douglas Farrar said the agency stands by its “clear authority” to issue the rule.

“We will continue to fight to free hard-working Americans from unlawful noncompetes that stifle innovation, stifle economic growth, entrap workers and undermine Americans’ economic freedom,” Farrar said in a statement. Daryl Joseffer, general counsel of the chamber’s litigation department, called the ruling “a major victory in the chamber’s fight against government micromanagement of business decisions.”

“The FTC’s blanket ban on noncompetes is an unlawful power grab that violates the agency’s constitutional and statutory authority,” he said. The Democratic-controlled FTC approved the ban on noncompetes in a 3-2 vote in May. The commission and supporters of the rule say the agreements are an unfair restriction of competition that violates U.S. antitrust law and restricts wages and worker mobility.

California, Minnesota, Oklahoma and North Dakota have already banned noncompete agreements, and at least a dozen other states have passed laws restricting their use. The FTC’s rule would be the first nationwide ban on noncompete agreements. Business groups and many Republicans say noncompete agreements are a key tool for companies to protect trade secrets, confidential information and their investments in recruiting and training employees.

Ryan and the Chamber argue in their lawsuits that the FTC lacked the authority to adopt the ban and that Congress has granted the agency only limited regulatory authority. The FTC has argued that noncompete clauses inherently violate antitrust laws by restricting competition between companies in recruiting employees, and that prohibiting them falls within the agency’s broad authority to police anticompetitive conduct.

Brown said Wednesday that the rule is likely invalid because the FTC failed to justify its broad, near-total ban. “It imposes a ‘one size fits all’ approach with no end date, which does not permit a rational connection to be established between the facts established and the choice made,” the judge wrote.

The FTC is also facing a challenge to its rule in federal court in Philadelphia from a Pennsylvania tree trimming company. A judge has scheduled a July 10 hearing on the company’s request to temporarily block the rule.

(This story has not been edited by Devdiscourse staff and is auto-generated from a feed.)