Judge strikes down FTC’s ban on noncompetes

A Texas federal court blocked the Federal Trade Commission’s (FTC) new rule spearheaded by Chair Lina Khan that would have banned noncompete agreements nationwide. The ban was slated to take effect on September 4.

Judge Ada Brown ruled that the FTC has no legal authority to create such a broad rule and called the ban “arbitrary and capricious.” She also stated that only Congress could authorize such sweeping regulations.

A noncompete clause in employees’ agreements prevents them from joining rival firms or starting their companies to compete with their current employers. The FTC rule was intended to help workers by allowing them to switch jobs more freely, which the commission claims would lead to higher wages.

Khan argues that such agreements suppress economic freedom. However, business groups claim noncompetes are necessary to protect companies and their intellectual property.

The ban would have affected roughly 30 million US workers.

The FTC head has been leading efforts to increase competition in the labor market by targeting the monopolistic and antitrust practices of big firms, including Google, Meta, and Amazon.

However, the recent court ruling and potential future legal challenges, particularly from a conservative Supreme Court, may limit the success of her efforts.

The White House supports the ban, noting that around 20% of workers have signed noncompete agreements.