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On Tuesday, U.S. District Judge Ada Brown of Dallas blocked the FTC from enforcing a nationwide rule intended to ban noncompete agreements in the workforce.
The rule was temporarily blocked in July while the court considered legal challenges from business groups and the U.S. Chamber of Commerce. The business groups argued that Congress never intended to give the FTC so much power. They argued banning noncompete agreements could make it harder to protect important business secrets and confidential information. The sweeping ban was set to take effect on Sept. 4.
FTC representatives claim the rule was designed to improve worker flexibility and ensure fair wages and competition throughout the workforce. In her decision, however, Brown cited that the FTC lacks the authority to adopt such broad rules under existing federal antitrust laws.
A sweeping ban on noncompete agreements would have profound impacts on the future of work, specifically within hiring practices and the job market. The FTC estimates that 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.
Reuters reports the FTC is considering a potential appeal on the court’s decision.
“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,” U.S. Chamber of Commerce President and CEO Suzanne P. Clark said following the decision. “We remain committed to holding the FTC — and all agencies — accountable to the rule of law, ensuring American workers and businesses can thrive.”
The potential for a ban on noncompete agreements sparked debate over workers’ rights versus maintaining and protecting business competition. Supporters of the judge’s decision argue that blocking the FTC’s ban on noncompete agreements protects businesses from government overreach, and safegaurds trade secrets, intellectual property, and other information that business rely on to remain competitive.
On the other hand, proponents of the FTC’s ban argue that companies are limiting workers’ ability to switch jobs or start competing ventures, which could suppress wage growth and innovation. If future challenges to noncompete agreements succeed, the labor market might see higher numbers of professionals switching jobs — leading to higher competition for talent.
