(Bloomberg) — A federal judge ruled that the U.S. Federal Trade Commission cannot enforce its near-complete ban on non-compete agreements that was set to take effect next month, blocking an attempt by the agency to make labor markets more competitive.
In a ruling Tuesday, 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 excessive without a reasonable explanation.”
of in power represents a significant blow to the FTC and further divides the judiciary over the regulator's powers. A federal judge in Pennsylvania previously sided with the FTC. The rule is likely to go up for appellate review. Brown had before delayed implementation of the ban, which was scheduled to take effect on September 4.
“We are disappointed by Judge Brown's decision and will continue to fight to stop non-competes that limit the economic freedom of hard-working Americans, stifle economic growth, limit innovation and lower wages,” FTC spokeswoman Victoria said in a statement. Graham. “We are seriously considering a possible appeal.”
The US Chamber of Commerce called the decision a significant victory in its “fight against government micromanagement of business decisions.”
The FTC's rule was “an unlawful expansion of power that would have put American workers, businesses and our economy at a competitive disadvantage,” the chamber said in a statement.
Non-compete agreements have become increasingly common in the US, with about 20% of workers – roughly 30 million Americans – subject to them. The agency had argued that the provisions hurt workers, while employers claimed they help protect their investment in employees. Only a small number of states refrain from competing.
A ban on such arrangements would affect businesses and people across the workforce – everyone from doctors to tax professionals to hairdressers – and change the balance of power between bosses and staff.
The FTC claims it had the authority to adopt the rule in April as part of its duty to prevent unfair methods of competition. Graham said the agency will continue to seek to protect limited workers from non-compete agreements.
“Today's decision does not prevent the FTC from addressing non-competes through enforcement actions on a case-by-case basis,” Graham said.
Brown's decision can be appealed to the 5th U.S. Circuit Court of Appeals in New Orleans. The appeals court has become a favorite for conservative opponents of President Joe Biden's policies on federal regulatory power, guns, abortion and social media regulation.
The Dallas case is one of three lawsuits challenging the FTC's non-compete rule, and the most advanced. Others are pending in Florida and Pennsylvania, with one judge initially siding with the FTC and the other against. None of these lawsuits has yet reached a final determination on the authority of the FTC's regulation.
Read more: All about the non-compete clauses the FTC wants to ban
The case is Ryan v. Federal Trade Commission, 3:24-cv-00986, U.S. District Court, Northern District of Texas (Dallas).