US judge partially blocks FTC measures on non-compete clauses for employees

DALLAS — A federal judge in Texas on Wednesday partially blocked the implementation of a U.S. Federal Trade Commission (FTC) rule that would have banned agreements in which employees typically agree not to join their employer’s competitors or form competing companies.

U.S. District Judge Ada Brown in Dallas said in a written decision that the FTC, which is responsible for enforcing federal antitrust laws, does not have the authority to issue sweeping rules banning practices it considers unfair competition methods.

According to the FTC, about 30 million people, or 20 percent of U.S. workers, have signed non-compete agreements.

Brown, an appointee of former Republican President Donald Trump, blocked the FTC from enforcing the rule against a coalition of trade groups, including the U.S. Chamber of Commerce, the nation’s largest business lobby, and tax consulting firm Ryan, pending the outcome of their joint lawsuits.

The judge denied her request to block the rule nationwide, saying it was unclear whether such an order was appropriate. Brown said she would issue a final decision by Aug. 30, just days before the rule goes into effect.

FTC spokesman Douglas Farrar said the agency stands by its “clear authority” to issue the rule.

“We will continue to fight to free hardworking Americans from unlawful non-competes that limit innovation, stunt economic growth, trap workers, and undermine Americans’ economic freedom,” Farrar said in a statement.

Daryl Joseffer, chief counsel of the Chamber of Commerce’s litigation division, called the ruling “a major victory in the Chamber’s fight against government micro-control of corporate decisions.”

“The FTC’s blanket ban on non-compete agreements is an unlawful power grab that disregards the agency’s constitutional and statutory authority,” he said.

The Democratic-controlled FTC passed the ban on noncompete agreements in May by a 3-2 vote. The commission and its supporters say the agreements are an unfair restraint of competition, violate U.S. antitrust law and limit worker wages and mobility.

California, Minnesota, Oklahoma and North Dakota have already banned noncompetes, and at least a dozen other states have passed laws limiting their use. The FTC’s decision would be the first nationwide ban on noncompetes.

Business associations and many Republicans believe that non-compete agreements are a crucial tool for companies to protect trade secrets and confidential information and to protect their investments in recruiting and training workers.

Ryan and the Chamber of Commerce argue in their lawsuits that the FTC did not have the authority to enact the ban and that Congress gave the agency only limited legislative powers.

The FTC argues that non-compete agreements generally violate antitrust law because they restrict competition between companies to recruit workers. A ban on these agreements falls within the agency’s broad discretion to monitor anti-competitive behavior.

Brown said Wednesday that the rule is likely invalid because the FTC did not justify the comprehensive, near-total ban.

“It imposes a one-size-fits-all approach with no end date that fails to establish a rational connection between the facts established and the decision made,” the judge wrote.

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