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A federal judge on Wednesday temporarily delayed enforcement of a ban on non-compete agreements for a small number of employers. September 4.
Unless the judge rules otherwise Until that day, no non-compete agreements are allowed. It applies to the majority of U.S. businesses, but we’ll know later this summer whether it’s still in effect.
“While this order is interim, the Court intends to rule on the final merits of this action no later than August 30, 2024,” Judge Ada Brown of the U.S. District Court for the Northern District of Texas wrote.
A concerted effort to persuade them is likely to take place between now and the end of August. Judge blocks ban The trend is spreading across the country, said Jesse Coleman, a partner at Houston law firm Seyfarth Shaw and president of SHRM, the Society for Human Resource Management.
The ban, which prohibits employers from adding non-compete clauses to most existing employment contracts and bars companies from adding non-compete clauses to future employment agreements, was approved by the Federal Trade Commission in April.
Within a day of the FTC’s approval, the agency was sued by Ryan LLC, a Texas-based tax services and software provider, as well as a separate lawsuit from the U.S. Chamber of Commerce and other business groups.
Wednesday’s order provides for a preliminary injunction. Plaintiff (Ryan LLC) and The plaintiff, the intervener, U.S. Chamber of Commerce, Business Roundtable, Texas Business Association, Longview Chamber of Commerce, except: Member companies of these groups.”[T]”The Court declines to grant an injunction against members of the plaintiff interveners,” the judge wrote.
The court said it did not believe the FTC had rulemaking authority to issue non-competitive orders, but the judge Coleman said he has declined to issue a nationwide ban for now.
Part of the reason, according to the order, appears to be that the plaintiff interveners did not adequately explain to the court why the ban should be applied more broadly.
The FTC estimates that 30 million American workers — one in five — are bound by non-compete clauses in their current jobs. For most of them, it argues, these clauses limit the freedom to change jobs, lower wages, stifle innovation, prevent entrepreneurs from starting new businesses, and undermine fair competition.
In a statement, the U.S. Chamber of Commerce cast the limited preliminary injunction as a victory. “The FTC’s blanket ban on competing is an illegal power grab that ignores the agency’s constitutional and statutory authority and sets a dangerous precedent that the government knows better than the marketplace. The U.S. Chamber of Commerce will continue to hold the FTC accountable in court,” said Darryl Josepher, the group’s chief counsel.
In response to the order, FTC spokesman Douglas Faller said, “The FTC maintains its clear authority to issue this rule, backed by statute and precedent. We will continue to fight to free hard-working Americans from unlawful non-compete clauses that stifle innovation, stifle economic growth, trap workers, and undermine Americans’ economic freedom.”
On the other hand, the court’s order does not prevent the FTC from taking enforcement action against non-compete agreements on a case-by-case basis.
This article has been updated with additional details and context.
