Federal judge blocks FTC noncompete ban

A federal judge Tuesday blocked a nationwide ban on noncompete agreements from taking effect in September.

The Federal Trade Commission (FTC) voted in April to ban most noncompete agreements, which prevent tens of millions of employees from leaving their jobs to work for competitors or start a competing business.

The Dallas-based tax firm Ryan LLC, the U.S. Chamber of Commerce, the Business Roundtable and other business groups sued to block the rule from going into effect, alleging agency overreach that would make it harder for companies to retain talent.

U.S. District Judge Ada Brown in Dallas said the FTC had overstepped its statutory authority and called the rule “arbitrary and capricious.”

“This win preserves the validity of millions of employment contracts across the nation that facilitate trust between employers and employees, innovation through the protection of IP, and investment in the training of employees,” said John Smith, senior vice president, chief legal officer and general counsel for Ryan.

Chamber of Commerce President and CEO Suzanne P. Clark called the decision “a significant win in the Chamber’s fight against government micromanagement of business decisions.” 

“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,” Clark said.

The rule was slated to go into effect Sept. 4.

“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,” FTC spokesperson Victoria Graham said.

“We are seriously considering a potential appeal, and today’s decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.”

Last month, a federal judge in Philadelphia rejected a bid by tree-trimming company ATS Tree Services to block the ban, reasoning the FTC has the authority “to prevent unfair methods of competition in commerce” under the 1914 Federal Trade Commission Act.

Josh Robbins, an attorney who represented ATS at the Pacific Legal Foundation, said they were “pleased” by the Tuesday decision.

“This is a great first step and we expect litigation over the ban to continue,” Robbins said.

Updated at 7:53 p.m. ET.