Federal Judge Blocks FTC Noncompete Ban

A federal judge in Texas issued a permanent injunction against the Federal Trade Commission’s ban on noncompete agreements Aug. 20, two weeks before the controversial regulation’s effective date.

U.S. District Judge Ada Brown determined that the FTC exceeded its authority with the wide-ranging rule, which banned for-profit employers from issuing any new noncompete agreements.

The rule, which the FTC approved 3-2 in April, also made almost all existing agreements unenforceable after the Sept. 4 effective date.

It not only prohibited nearly all employers from entering into noncompete agreements with workers, but also invalidated existing noncompete agreements, except those entered into with “senior executives.”

A “senior executive” referred to a worker earning more than $151,164 in a “policymaking position.”

‘Arbitrary and Capricious’

Brown temporarily blocked the rule in July while reviewing a U.S. Chamber of Commerce-led lawsuit seeking to strike it down entirely.

In her Aug. 20 ruling, Brown wrote that even if the FTC had the power to adopt the rule, the agency had not justified banning virtually all noncompete agreements.

“The commission’s lack of evidence as to why they chose to impose such a sweeping prohibition … instead of targeting specific, harmful noncompetes, renders the rule arbitrary and capricious,” she wrote.

“A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power.”

U.S. Chamber’s Suzanne Clark

U.S. Chamber of Commerce president and CEO Suzanne Clark called the ban “not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive.”

“This decision is a significant win in the chamber’s fight against government micromanagement of business decisions,” she said in a statement.

“A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage.”

Potential Appeal

FTC officials said they were disappointed with Brown’s ruling and were “seriously considering a potential appeal.”

“Today’s decision does not prevent the FTC from addressing noncompetes through case-by-base enforcement actions,” the agency noted in a statement.

Earlier this month, a federal judge in Florida ruled the ban was likely invalid and blocked it from being applied to a real estate developer.

However, in July, a federal judge in Philadelphia ruled against a suit seeking to block the ban, ruling that the FTC “reasonably concluded that noncompetes are virtually never justified.”

A bill banning a range of noncompete agreements stalled in the Connecticut legislature during the 2024 session.

Noncompete agreements are banned in California, Minnesota, Oklahoma, and North Dakota, and at least a dozen other states have laws limiting their use.

A bill banning a range of noncompete agreements stalled in the Connecticut legislature during the 2024 session after gaining approval from the Labor and Public Employees Committee.

HB 5269, which the Labor Committee approved in March on an 8-4 party line vote, made noncompete and exclusivity agreements unenforceable under certain conditions.

However, the bill was referred to the Judiciary Committee, which did not act on it before its deadline for reporting legislation, effectively killing the measure for this year.