Federal Judge Strikes Down Biden Admin Rule Impacting Millions of American Workers
A federal judge has ruled against a Biden administration rule that aimed to ban non-compete agreements for employees, which would have impacted millions of American workers. U.S. District Court Judge Ada Brown concluded that the Federal Trade Commission (FTC) overstepped its authority by attempting to ban all non-compete agreements rather than targeting specific harmful ones. The judge’s decision criticized the lack of evidence provided for such a sweeping restriction. The FTC had justified the regulation by stating that it would enhance competition and innovation by allowing workers greater freedom to change jobs or start businesses. The rule was initially set to take effect on September 4 and was expected to affect around 30 million workers. The case was brought forward by Ryan LLC, supported by various business groups. The FTC is currently considering an appeal against the ruling to continue its efforts to eliminate non-compete contracts, which they argue inhibit economic growth and suppress wages.
A federal judge struck down a Biden administration rule on Tuesday that banned employers from using non-compete agreements, which would have affected the contracts of millions of Americans.
U.S. District Court Judge Ada Brown for the Northern District of Texas ruled that the Federal Trade Commission’s banning the entire category of non-competes, rather than targeting “specific, harmful” sub-categories of the agreements, went beyond the commission’s mandate to police unfair methods of competition. The ban on the contracts that limit workers’ ability to move to rival firms, which was announced in April, was supposed to go into effect on September 4 and would have affected roughly 30 million American workers, according to the initial FTC press release.
“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 wrote in her ruling.
A Texas federal judge on Tuesday permanently blocked the FTC’s looming ban on noncompete agreements in employment contracts, setting aside the regulation with a conclusion that it’s beyond the agency’s authority.
— Law360 (@Law360) August 21, 2024
The case was brought by tax services and software provider Ryan LLC, with backing from the Chamber of Commerce and other business advocacy groups, court documents show.
“The continuing overreach and over-regulation from the federal government jeopardizes America’s economic liberty and diminishes the opportunity our country provides for all of us,” Chief Executive of Ryan LLC Brint Ryan said, according to The Wall Street Journal.
The FTC initially announced the rule on the grounds that increasing workers’ ability to switch jobs would promote competition, innovation and entrepreneurship by allowing employees to take competing job offers or start their own rival businesses.
“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 non-competes are banned,” FTC Chair Lina Khan said in the agency’s April press release. “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 agency is now weighing an appeal and plans to continue “fighting to stop non-competes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages,” according to a FTC spokeswoman.
The FTC did not immediately respond to a request for comment.
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