A Federal Judge Just Struck Down the FTC’s Ban on Non-Competes

On September 4, a new Federal Trade Commission (FTC) rule was set to take effect that would ban non-compete clauses. America was a few weeks away from a world where no employer could restrict employees from taking a job with a competitor, but that didn’t happen. On Tuesday, a federal judge blocked the ban from taking place.

The FTC had been studying the issue of non-competes for years. It first proposed a rule against them in 2023 and announced an official ban in April.

“Non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina M. Khan said at the time. “The FTC’s final rule to ban non-competes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The rule was set to take effect 120 days after it had been entered into the Federal Register and would nullify existing noncompetes. The U.S. Chamber of Commerce was aggressively against the ban and promised to take legal action.

The Chamber found willing plaintiffs in Texas where Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled in its favor.

“The court sets aside the Non-Compete Rule…and the Rule shall not be enforced or otherwise take effect on September 4, 2024, or thereafter,” Brown said in her brief ruling.

The Chamber called it a victory for business owners.

“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,” the Chamber of Commerce said in a statement on its website. “We remain committed to holding the FTC—and all agencies—accountable to the rule of law, ensuring American workers and businesses can thrive.”

The FTC said it might appeal the ruling. “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. We are seriously considering a potential appeal,” the FTC told the Verge.