by DALLAS — This Tuesday, Judge Ada Brown, a federal U.S. District judge in Texas, stuck down the Federal Trade Commission’s proposed ban on noncompete agreements just a few weeks before the ruling was set to take effect on Sept. 4.
In her ruling, Brown ruled that the FTC lacks the authority to ban practices it sees as unfair methods of competition by adopting broad rules. “The court concludes that the FTC lacks statutory authority to promulgate the Noncompete Rule and that the rule is arbitrary and capricious. Thus, the FTC’s promulgation of the rule is an unlawful agency action,” Brown wrote in her order. “(The rule) is hereby SET ASIDE and shall not be enforced or otherwise take effect on Sept. 4, 2024, or thereafter.”
The ruling was prompted by an earlier move by Ryan LLC, a tax services firm in Dallas, which had sued to block the rule just hours after the FTC had voted to ban noncompetes for virtually all U. S. workers this past April.
After learning of the lawsuit initiated by Ryan LLC, other groups, including the Texas Association of Business and the U.S. Chamber of Commerce, joined in.
Noncompete clauses are used in many industries to prevent employees from taking a job with a competitor or starting a related business within a certain amount of time or distance. The FTC estimates that one in five workers (about 30 million) are subject to a noncompete clause.
The FTC says it is disappointed but will keep fighting to stop noncompetes. “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,” wrote FTC spokesperson Victoria Graham in a statement.
