Texas court blocks the FTC’s ban on noncompete agreements

The Federal Trade Commission’s (FTC) ban on noncompete agreements was supposed to take effect on September 4, but a Texan court has postponed its implementation by siding with the plaintiffs in a lawsuit that seeks to block the rule. Back in April, the FTC banned noncompetes, which have been widely used in the tech industry for years, to drive innovation and protect workers’ rights and wages. A lot of companies are unsurprisingly unhappy with the agency’s rule — as NPR notes, Dallas tax services firm Ryan LLC sued the FTC hours after its announcement. The US Chamber of Commerce and other groups of American businesses eventually joined the lawsuit.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism,” FTC Chair Lina M. Khan said when the rule was announced. They prevent employees from moving to another company or from building businesses of their own in the same industry, so they may be stuck working in a job with lower pay or in an environment they don’t like. But the Chamber of Commerce’s chief counsel Daryl Joseffer called the ban an attempt by the government to micromanage business decisions in a statement sent to Bloomberg.

“The FTC’s blanket ban on noncompetes is an unlawful power grab that defies the agency’s constitutional and statutory authority and sets a dangerous precedent where the government knows better than the markets,” Joseffer said. The FTC disagrees and told NPR that its “authority is supported by both statute and precedent.”

US District Judge Ada Brown, an appointee of former President Donald Trump, wrote in her decision that “the text, structure, and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition.” Brown also said that the plaintiffs are “likely to succeed” in getting the rule struck down and that it’s in the public’s best interest to grant the plaintiff’s motion for preliminary injunction. The judge added that the court will make a decision “on the ultimate merits of this action on or before August 30.”