US District Judge Ada Brown has officially blocked the US Federal Trade Commission’s (FTC) rule banning noncompete agreements. Brown had temporarily blocked the rule in July, stating the FTC did not have rulemaking authority. The court was expected to issue a final order on the merits just before the Rule was to take effect on September 4, but instead issued a memorandum opinion ten days ahead of schedule.
In her ruling, Brown said: “The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition … instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.”
This final ruling does not prevent the FTC from prohibiting noncompetes or delivering enforcement actions, but it must do so on an individual, case-by-case basis.
In its original Rule approved in April, the FTC described noncompetes as an “exploitative practice” that prevent workers from starting new businesses or switching jobs, effectively forcing them to stay with their current employer. It leaned heavily on language from the FTC Act, specifically citing “unfair method of competition” as the basis for the violation.
Pushback against the FTC’s proposed rule was swift and significant, but court opinions appeared to be mixed. While Brown placed a preliminary injunction on the action in the state of Texas, a Pennsylvania federal judge ruled in the FTC’s favor, describing noncompetes as virtually never justified.
