On September 4th, new Federal Trade Commission (FTC) rules went into effect banning non-compete clauses. Within weeks, the US was set to see a world where employers could not restrict employees from seeking work for a competitor. But that didn’t happen: On Tuesday, a federal judge blocked the ban from going into effect.
The FTC has been studying the issue of non-compete clauses for years. It first proposed rules to ban non-compete clauses in 2023 and announced a formal ban in April.
“Non-compete clauses keep wages low, stifle new ideas, and sap the energy of the American economy. Banning non-compete clauses would result in more than 8,500 new startups being created each year,” FTC Chairman Lina M. Khan said at the time. “The FTC’s final rule banning non-compete clauses will ensure Americans are free to seek new jobs, start new businesses, and bring new ideas to market.”
The rule would take effect 120 days after publication in the Federal Register and would void existing non-compete clauses. The U.S. Chamber of Commerce strongly opposes the ban and has promised legal action.
The Chamber found support for the plaintiffs in Texas, and Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled in the Chamber’s favor.
“The Court voids the non-compete provision and shall not operate or take effect after September 4, 2024,” Judge Brown wrote in a brief ruling.
The Chamber of Commerce called it a victory for business owners.
“This decision marks a major victory for the Chamber in our fight against government micromanagement of corporate decisions. The FTC’s blanket ban on non-compete agreements was an illegal expansion of power that puts American workers, businesses and our economy at a competitive disadvantage,” the Chamber said in a statement on its website. “We remain committed to holding the FTC and all agencies to the rule of law so American workers and businesses can thrive.”
The FTC said it may appeal the ruling. “We are disappointed with Judge Brown’s ruling and will continue to fight to stop non-compete clauses that limit the economic freedom of hard-working Americans, stifle economic growth, restrict innovation, and depress wages. We are seriously considering a possible appeal,” the FTC told The Verge.