Federal Judge Blocks FTC's Noncompete Ban

A federal judge ruled the U.S. Federal Trade Commission can’t enforce its near-total ban on noncompete agreements that was set to go into effect next month, blocking an effort by the agency to make labor markets more competitive.

In a ruling Aug. 20, U.S. District Judge Ada Brown in Dallas sided with the U.S. Chamber of Commerce and a Texas-based tax firm 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 ruling represents a significant blow for the FTC and further divides the judiciary over the regulator’s powers. A federal judge in Pennsylvania had previously sided with the FTC. The rule is likely to be headed for appellate review. Brown had previously delayed implementation of the ban, which was scheduled to take effect on Sept. 4.

“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. “We are seriously considering a potential appeal.”

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

The FTC’s rule was “an unlawful extension of power that would have put American workers, businesses and our economy at a competitive disadvantage,” the chamber said in a statement.

Noncompete agreements have become increasingly common in the U.S., with an estimated 20% of workers — roughly 30 million Americans — subject to them. The agency had argued the provisions harm workers, while employers claimed they help protect their investments in employees. Only a handful of states bar noncompetes.