Federal Judge Upholds FTC Ban on Noncompete Agreements

The U.S. has reached another key moment in the debate over labor policy as a federal judge has denied an injunction that would have blocked the Biden administration’s recent ban on noncompete agreements, rejecting an attempt by ATS Tree Services to nulify the regulation.  

The decision, as reported by Reuters, supports the U.S. Federal Trade Commission (FTC) in its enforcement of rules against what it deems anti-competitive practices that limit labor mobility and suppress wages.  

U.S. District Judge Kelley Hodge issued a written decision affirming the FTC’s authority to ban practices it determines are anticompetitive. The New York Times reports Judge Hodge ruled ATS had not proved it would face insufferable harm from the rule.  

The FTC initially announced that it was seeking to ban noncompete clauses in January 2023. In April, the regulator’s commissioners voted 3-2 in favor of the ban. The nationwide ban was enacted by the agency in May. However, legal challenges have led large business groups, including the U.S. Chamber of Commerce to file lawsuits, essentially blocking the rule from taking effect until the outcome of its lawsuit is known. 

These groups contend that noncompete agreements are for protecting trade secrets, confidential information, and investments in employee training and recruitment. They also argue that the FTC lacks the authority to enforce such a sweeping change across the workforce, a stance bolstered by previous court skepticism towards expansive federal agency powers. 

FTC spokesperson Douglas Farrar praised the district court’s recent decision, stating, “The ruling fully vindicates that the law allows the agency to ban noncompete clauses, which harm competition by inhibiting workers’ freedom and mobility while stunting economic growth.” 

The FTC estimates around 30 million Americans, or nearly one in five Americans, are subject to noncompete agreements as a condition of employment. These clauses typically restrict employees from joining competitors or starting similar businesses for a set period after leaving an employer and often include location restrictions.  

This contentious issue coincides with the broader debate across the workforce on balancing business interests with fair labor practices. Reuters reports Judge Hodge’s ruling aligns with states like California, Minnesota, Oklahoma, and North Dakota, which have already banned noncompete agreements. 

Earlier this month, Judge Ada Brown of the U.S. District Court for the Northern District of Texas granted a preliminary injunction requested by several plaintiffs, including the U.S. Chamber of Commerce, to delay implementation of the ban. For now, employers await a decision from Judge Brown.