Federal Judge Slaps Down FTC Rule

Biden’s Federal Trade Commission (FTC) just took a major blow this week.

The FTC had passed a rule in April to ban all noncompete agreements.

These are agreements that block employees from accepting jobs in the same market or starting their own businesses for a very specific period of time after termination of employment (within the same niche), but a federal judge has blocked that rule.

Not Just Yet

U.S. District Judge Ada Brown in Dallas struck down the rule, calling it “arbitrary and capricious.”

The court ruled that such a ban would make it harder to retain quality staff and would be blatant overreach by the agency.

The Dallas-based tax firm Ryan LLC, the U.S. Chamber of Commerce, and the Business Roundtable were among the groups that wanted to block the ban on noncompete agreements.

John Smith, senior vice president, chief legal officer, and general counsel for Ryan, stated, “This win preserves the validity of millions of employment contracts across the nation that facilitate trust between employers and employees, innovation through the protection of IP, and investment in the training of employees.”

Chamber of Commerce President and CEO Suzanne P. Clark added, “A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage.”

FTC spokesperson Victoria Graham was not so happy, responding, “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.

“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.”

This is far from the end of this litigation, but it surely is a good first step in terms of the businesses being protected.

While I don’t think noncompete agreements should be exceptionally long, they clearly have a place in the business world.

Now we just have to see if the decision holds up.