The FTC’s ban against noncompete agreements may be under threat

A federal judge could block the Federal Trade Commission’s impending ban on noncompete agreements from going into effect. Noncompete agreements are intended to make it difficult for employees to switch to similar positions at other companies or start businesses of their own, and they’ve been a contentious issue within tech companies in particular.

The ban had been set to go into force on September 4th, but on Wednesday, Judge Ada Brown issued a preliminary injunction in a lawsuit brought against the FTC. For those plaintiffs, the FTC’s ban will no longer go into effect on September 4th. Brown says she plans to rule on their entire challenge to the FCC “on or before August 30, 2024,” potentially stopping the FTC from blocking noncompetes nationwide.

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

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

“The FTC stands by our clear authority, supported by statute and precedent, to issue this rule,” reads a statement from FTC spokesperson Douglas Farrar. “We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty.”

The FTC voted 3-2 in support of the ban. At the time, the FTC argued that the ban would allow for more than 8,500 new businesses to be made each year.

Update, July 3rd: Added statement from the FTC, and clarified when the FTC’s ban may or may not go into effect.