Judge Tosses FTC Ban on Noncompete Agreements, Dealing Major Blow to Biden Admin’s Anti-Business Campaign

A federal judge on Tuesday struck down a Federal Trade Commission rule banning employers from offering workers contracts meant to prevent them from joining competitors or launching startups, dealing a significant blow to the Biden administration’s efforts to rein in employment practices that progressives view as unfair toward workers.

Texas Judge Ada Brown ruled that the FTC lacks the authority to enact sweeping competition rules like banning noncompete agreements between businesses and employees. A month ago, Brown temporarily blocked the FTC’s noncompete ban from taking effect after a challenge from the pro-business U.S. Chamber of Commerce, tax firm Ryan LLC, and other plaintiffs.

“The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition—that prohibits entering or enforcing virtually all non-competes—instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious,” Brown said.

The FTC’s noncompete ban was set to begin next month after the agency voted to adopt the rule earlier this year. Ryan initiated the lawsuit right after the FTC’s five commissioners voted 3-2 to enact the noncompete ban along partisan lines.

“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 told The Hill.

“We are seriously considering a potential appeal, and today’s decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions,” she added.

When the FTC announced the rule, the commission estimated that it would allow more than 8,000 new businesses to be created annually and drive the creation of tens of thousands of new patents each year.

The noncompete policy is a staple of FTC Chair Lina Khan’s aggressive antitrust agenda against big technology companies and other large corporations. One of the Biden administration’s most controversial appointees, Khan’s many critics have accused her of abusing the FTC’s authority and needlessly meddling with market outcomes.

“This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions. A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage,” said Chamber of Commerce CEO Suzanne P. Clark.

Roughly one-in-five Americans, 30 million people, have entered noncompete agreements, the FTC found. Proponents of banning noncompete agreement have attributed the success of Silicon Valley’s tech sector to California’s state-level ban on them.