FTC’s ban on non-compete agreements may be in jeopardy

A federal judge could block the Federal Trade Commission’s threatened ban on noncompete agreements. Noncompete agreements are designed to make it harder for workers to move to similar jobs at other companies or start their own businesses, and they’re a contentious issue, particularly within tech companies.

The ban was set to go into effect on Sept. 4, but on Wednesday, Judge Ada Brown granted a preliminary injunction in a lawsuit filed against the FTC. For those plaintiffs, the FTC’s ban will no longer go into effect on Sept. 4. Brown says she plans to rule on their entire challenge to the FCC “on or before August 30, 2024,” potentially preventing the FTC from blocking noncompete agreements nationwide.

Tax firm Ryan LLC filed the lawsuit against the FTC on the same day the ban was announced in April, arguing that the ban is “an impermissible, unconstitutional attempt to eliminate a long-standing private economic arrangement.” The U.S. Chamber of Commerce and Business Roundtable are among those who have joined the lawsuit since the filing.

Brown writes that she granted the preliminary injunction because the plaintiffs “are likely to prevail substantially on the merits of their challenge to the FTC’s noncompete rule.”

“The FTC stands by our clear authority, supported by statute and precedent, to issue this rule,” read a statement from FTC spokesman Douglas Farrar. “We will continue to fight to free hardworking Americans from abusive non-compete agreements that stifle innovation, hinder economic growth, ensnare workers, and undermine Americans’ economic freedom.”

The FTC voted 3-2 in favor of the ban. At the time, the FTC argued that the ban would create more than 8,500 new businesses per year.

Update, July 3: Added FTC statement clarifying when the FTC’s ban will and will not take effect.

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