Judge blocks FTC ban on noncompete agreements

Update: 

• A Texas federal judge blocked the Federal Trade Commission’s plan to ban noncompete agreements in employment contracts. 
• While granting summary judgment to a tax preparation company and the U.S. Chamber of Commerce, U.S. District Judge Ada E. Brown ruled the FTC exceeded its statutory authority with the ban and called the rule “arbitrary and capricious.”
• The decision came after the judge blocked the FTC from enforcing the ban on Ryan LLC and the USCC last month. 
• In April, the FTC voted to enact the ban to keep employers from imposing noncompete agreements on workers.
• The agency found the noncompete agreements violated Section 5 of the Federal Trade Commission Act and was an unfair method of competition. 
• The ban was set to go into effect Sept. 4.

FTC noncompete agreements ban proposal overview: 

• Who: The Federal Trade Commission has proposed a new rule that would ban employers from entering into noncompete agreements with workers. 
• Why: The FTC said it preliminarily found noncompete agreements are an unfair method of competition and violate the Federal Trade Commission Act. 
• Where: The proposed rule would affect businesses and workers nationwide.

(Jan. 11, 2023)

The Federal Trade Commission (FTC) has proposed a new rule that would prevent employers from being able to impose noncompete agreements on their workers. 

Proponents of noncompete agreements argue they are exploitative and suppress wages, hinder innovation and keep entrepreneurs from being able to start up a new business, according to the FTC. 

The FTC said it estimates that ending noncompete agreements would increase wages by $300 billion each year and increase employment opportunities for around 30 million American workers. 

Public comment is being sought on the FTC’s rule proposal, which it said is based on a preliminary finding that such agreements are an unfair method of competition and violate Section 5 of the Federal Trade Commission Act. 

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC Chair Lina M. Khan said in a statement. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions.” 

Noncompete agreements deprive businesses of talent pool, FTC says

Khan added that noncompete agreements end up “depriving businesses of a talent pool that they need to build and expand.” 

“By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition,” Khan said.

Under the FTC’s proposed changes, employers would no longer be able to enter into or attempt to enter into a noncompete agreement with a worker, maintain a noncompete agreement with a worker or represent to the worker that they are subject to a noncompete agreement under certain circumstances. 

Independent contractors and any individual who is employed whether in a paid role or not would also be subject to the proposed rule, which would also require employers to rescind any existing noncompete agreements and inform workers that they did so, according to the FTC. 

A class action lawsuit accusing McDonald’s of violating the law by entering into noncompete agreements with franchisees was dismissed last July by a federal judge in Illinois. 

Have you entered into a noncompete agreement with an employer? Let us know in the comments. 

Read About More Class Action Lawsuits & Class Action Settlements:

• Tesla racial discrimination class action gets 2025 trial date
• 15K FedEx drivers file class action over OT wages
• Judge gives final approval to $9.39M White Castle BIPA settlement
• NCAA settles NIL class action for $2.78B, allows revenue sharing with athletes