A federal judge in Texas has blocked the Federal Trade Commission’s (FTC) attempt to prohibit noncompete agreements, which often prevent workers from switching jobs or starting new businesses. Judge Ada Brown, ruling in the Northern District of Texas, granted a motion for summary judgment requested by several business groups, including the US Chamber of Commerce. The ruling sets aside the FTC’s Non-Compete Rule, which was set to take effect on September 4, 2024.
Previously, Judge Brown had issued a preliminary injunction stating that the FTC lacks the authority to issue a rule banning noncompete agreements. This latest ruling, however, blocks the FTC rule entirely. The court’s decision is “a final and appealable judgment,” which means the FTC can now appeal to the US Court of Appeals for the 5th Circuit.
The FTC has indicated its disappointment with the ruling and is considering an appeal. “We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans,” an FTC spokesperson said in a statement to Ars Technica.
In April, the FTC had argued that it could ban noncompete clauses under Section 5 of the FTC Act, which prohibits unfair methods of competition. The FTC estimated that 30 million US workers are bound by noncompete clauses, with the new rule declaring the vast majority unenforceable. However, Judge Brown ruled that Section 6(g) of the FTC Act, which the agency cited as its rulemaking authority, is merely a “housekeeping statute” and does not provide substantive rulemaking power.
Following the ruling, the US Chamber of Commerce celebrated the decision as “a significant win in the Chamber’s fight against government micromanagement of business decisions.” A lobby group for cable broadband companies also praised the ruling, calling it “yet another decision that makes the case against regulatory overreach.” For more information, click here.