FTC’s Non-Compete Ban Blocked Nationwide by Federal Court

The Federal Trade Commission's non-compete ban has been blocked nationwide after Texas Federal Judge Ada Brown ruled that the agency lacked the authority to enact the “unreasonably overbroad” regulation.

A Texas federal judge has issued a nationwide injunction blocking the FTC's ban on non-compete agreements.
The FTC has vowed to appeal the decision, citing worker protections.
The U.S. Chamber of Commerce praised the ruling, arguing it preserves business interests.

A federal judge has blocked the Federal Trade Commission’s (FTC) attempt to ban non-compete agreements nationwide, issuing an injunction that halts the agency's proposed rule, Bloomberg Law reports. The decision marks a significant setback for the FTC, which had positioned the ban as a critical measure to protect workers from restrictive employment practices and make labor markets more competitive.

What the Ruling Says

In its ruling in Ryan LLC v. Federal Trade Commission on August 20, the federal district court for the Northern District of Texas “set aside” with nationwide effect, the FTC “Non-Compete Rule,” as per a JDSupra report.
U.S. District Judge Ada Brown in Dallas sided with the US Chamber of Commerce and Texas-based Ryan LLC that sued to block the measure. The judge said the FTC lacked the authority to enact the ban, which she said was “unreasonably overbroad without a reasonable explanation.”
The court further found in support of its conclusion that the rule is arbitrary and capricious that the “FTC failed to sufficiently address alternatives to issuing the Rule.”

FTC Considering Appeal

The FTC expressed its intent to appeal, emphasizing that the ban is necessary to protect workers' rights and prevent unfair limitations on their employment opportunities. “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 spokesperson Victoria Graham said in a statement.

Judge Brown’s decision could be appealed to the U.S. 5th Circuit Court of Appeals in New Orleans.

U.S. Chamber of Commerce Welcomes Ruling

On the other side, the U.S. Chamber of Commerce welcomed the ruling, arguing that the FTC rule was “an unlawful extension of power that would have put American workers, businesses and our economy at a competitive disadvantage.

The Chamber called the ruling a significant win in its “fight against government micromanagement of business decisions.”

Ongoing Legal Challenges

The Texas injunction is not the only legal challenge facing the FTC's non-compete ban. Two other lawsuits are pending against the FTC’s non-compete rule:

Florida: Federal judge Timothy Corrigan ruled that the ban on non-compete clauses is unlawful, but limited the decision to the plaintiff rather than blocking the FTC from enforcing the ban nationwide, according to JDSupra.
Pennsylvania: U.S. District Judge Kelley Hodge in Philadelphia upheld the FTC's authority as not implicating the major questions doctrine, and ruled that the agency has the right to regulate non-compete clauses as part of its mandate to protect consumers and promote fair competition, according to Reuters.

Neither of these suits has yet reached a final determination on the FTC’s rulemaking authority.