On Aug. 20, a federal judge in Texas struck down the Federal Trade Commission’s (FTC) ban on employer noncompete agreements, which was scheduled to go into effect on Sept. 4.
District Judge Ada Brown, an appointee of former president Donald Trump, said in a 27-page opinion that the FTC lacked the “statutory authority” to enact the rule, which she called “arbitrary and capricious.” Her ruling came in response to a challenge from the U.S. Chamber of Commerce and Business Roundtable, an association of CEOs.
In April, the FTC approved a sweeping ban on noncompetes. The agency’s rule not only said companies couldn’t stop their employees from eventually working for competitors, it also prevented employers from enforcing existing noncompetes. Currently, some 30 million American workers—about one in five—have some kind of noncompete provision in their employment contract.
“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 spokeswoman Victoria Graham tells JCK via email. “We are seriously considering a potential appeal, and [this] decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.”
Brown’s order contradicts a ruling last month by the Eastern District of Pennsylvania, which found that the FTC had the statutory authority to ban noncompetes.
The two different findings means the issue could reach the U.S. Supreme Court, says Sara Yood, president and CEO of the Jewelers Vigilance Committee.
“We would recommend that jewelers be careful with new noncompetes because the FTC is still taking the position that they are an unfair restraint on trade,” she says. “Executing a new noncompete could make you a target for new FTC action.”
Four states now have laws banning noncompetes—California, Minnesota, North Dakota, and Oklahoma—and several others have imposed restrictions on them, according to Bloomberg.
(Photo: Getty Images)
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