The U.S. Federal Trade Commission’s (FTC) final rule banning noncompete agreements — issued in April 2024 and set to take effect Sept. 4 — has been blocked.
A federal judge in Texas has barred the rule that would ban agreements commonly signed by workers not to join their employers’ rivals or launch competing businesses.
According to Reuters, U.S. District Judge Ada Brown in Dallas said the FTC — which enforces federal antitrust laws — does not have the authority to ban practices it deems unfair methods of competition by adopting broad rules and that even if the agency had such power, it had not justified banning virtually all noncompete agreements.
Reuters said that in her decision in a bid brought by the U.S. Chamber of Commerce and Dallas-based tax service firm Ryan against the FTC, Judge Brown wrote, “The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition … instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.”
When it published its rule in the spring banning noncompetes, the FTC said the move aimed to protect the fundamental freedom of workers to change jobs, increase innovation and foster new business formation.
In a statement, FTC spokesperson Victoria Graham expressed the agency’s disappointment with the ruling and said it is “seriously considering a potential appeal.”
Critics who viewed the FTC rule as harmful to American workers, businesses and the economy overall applaud the block. “This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions,” said U.S. Chamber of Commerce President and CEO Suzanne Clark in a statement.
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