Federal Judge Strikes Down US Agency Non-Compete Agreement Ban
Biden administration had championed the rule
The noncompete agreement ban enacted by the Federal Trade Commission was opposed by the Associated Builders and Contractors.
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A federal judge in Texas ruled Aug. 20 that the Federal Trade Commission ban on most non-compete agreements used in business exceeded its authority and barred the rule from taking effect next month.
The ban had been challenged by the U.S. Chamber of Commerce and other business organizations, including the Associated Builders and Contractors.
Judge Ada Brown had in July granted the plaintiffs in the case, Ryan v. the Federal Trade Commission, a temporary injunction against enforcing the ban.
Citing the federal Administrative Procedures Act, a law that allows a reviewing court to set aside agency actions, Brown described the ban as an unconstitutional exercise of power that was also arbitrary and capricious.
The ban had exempted senior executives as well as situations such as the sale of a company.
Associated Builders and Contractors is "extremely pleased with the court’s decision and has consistently stated that members have valid business justifications for utilizing non-compete agreements, such as protecting confidential information and intellectual property," it said in a statement. "The new rule would have had a harmful effect on member companies as well as their employees, forcing employers to rework their compensation and talent strategy.".
Brint Ryan, CEO of the Dallas-based tax consulting firm that first challenged the Federal Trade Commission ban, wrote that “Non-competes serve as a cornerstone of mutual trust between employer and employee.”
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Agency officials estimate about 30 million U.S. workers are subject to a non-compete clause or agreement.
North America’s Building Trades Unions had supported the ban, saying such agreements “artificially depress wages, reduce labor market mobility and interfere with employees’ ability to improve their working conditions and wages by organizing.”
The commission had issued a final rule April 23 after commissioners voted 3-2 to approve it.
