Federal Court Partially Blocks FTC’s Noncompete Ban

A federal court in Texas has issued a preliminary injunction partially blocking the Federal Trade Commission’s (FTC) ban on noncompete agreements,  set to take effect on September 4, 2024. The decision comes after Ryan LLC, a Dallas-based tax services firm, filed a lawsuit challenging the rule.

The legal battle began in April, just hours after the FTC voted to ban noncompetes for nearly all U.S. workers. Ryan LLC’s suit was later joined by the U.S. Chamber of Commerce, which had initially filed a separate lawsuit against the FTC in another federal court in Texas.

Judge Ada Brown of the U.S. District Court for the Northern District of Texas granted the motion for a preliminary injunction, delaying the implementation of the rule for the plaintiffs. “While this order is preliminary, the Court intends to rule on the ultimate merits of this action on or before August 30, 2024,” Judge Brown stated.

The FTC’s proposed ban aims to liberate approximately 30 million American workers from agreements that prevent them from joining competing businesses or starting their own ventures. These agreements affect a wide range of employees, from minimum-wage workers to top executives.

Ryan LLC’s complaint accuses the FTC of exceeding its statutory authority by declaring all noncompete agreements unfair and anticompetitive. The firm contends that the ban would cause “serious and irreparable injuries” to its business, jeopardizing confidential information and making it easier for competitors to lure away trained employees.

FTC Chair Lina Khan, one of the three commissioners who voted in favor of the new rule, has emphasized the agency’s commitment to ending noncompetes for almost all U.S. workers. However, the recent court ruling introduces significant uncertainty about the future of this initiative.

As the legal proceedings continue, both sides await a definitive ruling, expected by the end of August 2024.

Source: NPR