Texas Federal Judge Partially Blocks Nationwide Ban on Noncompete Agreements

A federal judge in Texas has partially blocked the FTC's rule banning noncompete agreements from taking effect. The judge stated that the FTC lacks the power to implement such broad regulations. The rule, intended to boost worker mobility and wages, faces ongoing legal challenges, with a potential nationwide impact.

A federal judge in Texas on Wednesday partially blocked a U.S. Federal Trade Commission rule from taking effect that would ban agreements commonly signed by workers not to join their employers' rivals or launch competing businesses. U.S. District Judge Ada Brown in Dallas said in a written decision the FTC, which enforces federal antitrust laws, lacked the power to adopt broad rules prohibiting practices that it deems unfair methods competition.

About 30 million people, or 20% of U.S. workers, have signed noncompetes, according to the FTC. Brown, an appointee of Republican former President Donald Trump, blocked the FTC from enforcing the rule against a coalition of business groups including the U.S. Chamber of Commerce, the country's largest business lobby, and tax service firm Ryan, pending the outcome of their consolidated lawsuits.

The rule is set to take effect in September. The FTC, the Chamber, and lawyers involved in the case did not immediately respond to requests for comment.

The Democratic-controlled FTC approved the ban on noncompete agreements

in a 3-2 vote in May. The commission and supporters of the rule say the agreements are an unfair restraint on competition that violate U.S. antitrust law and suppress workers' wages and mobility. California, Minnesota, Oklahoma and North Dakota have already banned noncompete agreements and at least a dozen other states have passed laws limiting their use, but the FTC's rule would be the first nationwide prohibition of noncompetes.

Business groups and many Republicans say that noncompetes are a crucial tool for businesses to protect trade secrets, confidential information and their investments in recruiting and training workers. Ryan and the Chamber

claim in their lawsuits that the FTC lacks the legal authority to adopt rules banning conduct that it deems to be an unfair method of competition.

They also say the rule violates the federal law governing agency rulemaking because the commission failed to consider narrower limitations on noncompetes, among other claims. The FTC has argued that noncompetes inherently violate antitrust laws by curbing competition between businesses to recruit workers, and banning them falls within the agency's broad powers to police anti-competitive conduct.

The commission has cited U.S. appeals courts decisions that upheld FTC rules requiring fuel distributors to determine the "octane rating" of gasoline and mail order companies to ship products within advertised time frames. Brown on Wednesday said the rule was likely invalid because the FTC had not justified the sweeping, near-total ban.

"It imposes a one-size-fits-all approach with no end date, which fails to establish a rational connection between the facts found and the choice made," the judge wrote. The FTC is also facing a challenge to its rule in Philadelphia federal court by a Pennsylvania-based tree trimming company. A judge has scheduled a July 10 hearing on the company's motion to temporarily block the rule.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)