A judge has invalidated the Biden administration’s prohibition on ‘noncompete’ agreements for workers.

On August 20, 2024, U.S. President Joe Biden addressed the press following the Democratic National Convention in Chicago, Illinois. On the same day, a federal judge in Texas, Ada Brown, ruled against a U.S. Federal Trade Commission (FTC) regulation that aimed to prohibit noncompete agreements, which prevent employees from working for competitors or starting similar businesses. Judge Brown, based in Dallas, stated that the FTC lacks the authority to implement such broad rules under federal antitrust laws.

Previously, in July, Brown had temporarily halted the rule while considering a challenge from the U.S. Chamber of Commerce and tax service firm Ryan, who sought to nullify it. The rule was supposed to be enforced starting September 4. In her decision, Brown criticized the FTC for not providing sufficient evidence to justify a comprehensive ban on noncompete agreements, calling the rule “arbitrary and capricious.” Brown was appointed by former President Donald Trump, a Republican.

Neither the FTC nor the Chamber of Commerce immediately commented on the ruling. The FTC, controlled by Democrats, had approved the ban in a narrow 3-2 vote in May. Proponents of the rule argue that noncompete agreements unfairly limit competition, violate antitrust laws, and restrict workers’ wages and job mobility. The FTC estimates that around 30 million U.S. workers, or 20% of the workforce, are bound by such agreements.

Typically, the FTC enacts rules targeting specific sectors, such as requiring disclosures from telemarketers or mandating fuel rating displays at gas stations. However, it is rare for the agency to impose bans on widespread business practices. Business groups contend that Congress did not intend to grant the FTC such extensive powers and argue that banning noncompetes would hinder the protection of trade secrets and confidential information.

Recently, a federal judge in Florida also ruled against the ban, deeming it likely invalid and preventing its application to a real estate developer. Conversely, a judge in Philadelphia upheld the FTC’s stance in July, agreeing that noncompete agreements are almost never justified.