A federal judge in Texas has blocked the Federal Trade Commission from moving forward with its ban on noncompete agreements, jeopardizing a major reform pursued by President Joe Biden.
U.S. District Judge Ada E. Brown of the Northern District of Texas issued the nationwide order on Tuesday, just two weeks before the rule was slated to go into effect. Brown, an appointee of former President Donald Trump, ruled that the FTC does not have the power to pursue such a broad ban and called it “arbitrary and capricious.”
Employers use noncompete agreements to prevent workers from taking jobs with competing firms. Once the domain of higher-paid, executive-level positions, the agreements are now found throughout the economy, including in low-wage sectors.
“The FTC estimates that the ban would increase wages by between $400 billion and $488 billion over a decade”
The FTC approved the ban in a 3-2 vote in April, with the commission’s three Democrats in favor and two Republicans against it.
The agency has said that banning noncompete contracts would give millions of workers more leverage in the labor market, boosting their pay and improving their working conditions. It estimates that the ban would increase wages by between $400 billion and $488 billion over a decade.
The case before Brown is one of a handful that employers and business groups have mounted to challenge the anti-noncompete rule’s legality and stop it from taking effect.
Victoria Graham, an FTC spokesperson, said the agency was “disappointed” in Brown’s decision and that is “seriously considering” an appeal.
“Today’s decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions,” Graham said in an email.
A federal judge in Pennsylvania recently reached the opposite conclusion, ruling that the FTC likely has the authority to ban noncompetes.
Kevin Dietsch via Getty Images
The ban has been a priority for both Biden, who has spoken often about the injustice he sees in noncompetes, and FTC Chair Lina Khan, a Biden appointee whose aggressive antitrust agenda has infuriated business groups.
Khan recently told HuffPost that any “champion for liberty” should oppose noncompete agreements.
“These noncompetes are really restricting people’s ability to easily switch jobs, and that undermines their core economic liberty piece, but it also undermines a more fundamental sense of liberties,” Khan said.
Although restricting noncompetes has been a Democratic aim for years, the ban has also drawn some support on the right, including from Rep. Matt Gaetz (R-Fla.), who filed an amicus brief in support of it earlier this year.