Circuit Courts Strikes Down Ban on Noncompetes, Blocking September Implementation
On August 20, U.S. District Court for Northern District of Texas Judge Ada Brown ruled that the U.S. Federal Trade Commission does not have the authority to ban all non-compete agreements commonly used by employers to prevent employees from joining competitors in the market or launching a competing business. The rule would have taken effect on September 4. An FTC spokesperson told Reuters that the agency is “seriously considering a potential appeal.”
The rule was announced in May following a 3-2 vote by the Federal Trade Commission that these agreements are an unfair restraint on competition. The judge found the FTC had not justified banning essentially all non-competes rather than a more targeted approach. “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,” wrote Brown in the decision.
The move comes following a ruling in July by Judge Brown that blocked the rule while the case moved forward. The U.S. Chamber of Commerce and tax service firm Ryan filed the suit to block the rule.
“This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions,” U.S. Chamber President and CEO Suzanne Clark said in a statement.
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