Second US judge blocks FTC ban on worker noncompete agreements

By Daniel Wiessner

(Reuters) -A federal judge in Florida has temporarily blocked a U.S. Federal Trade Commission rule that would ban agreements commonly signed by workers not to join their employers’ rivals or launch competing businesses, becoming the second judge to rule that the ban is likely invalid.

During a hearing on Wednesday, U.S. District Judge Timothy Corrigan in Ocala, Florida, blocked the FTC from applying the rule to real estate developer Properties of the Villages, pending the outcome of the company’s lawsuit claiming the commission lacked the power to adopt the ban earlier this year.

Corrigan at the hearing said the rule implicated a question of “extraordinary economic and political significance” that Congress did not empower the FTC to address, according to a court transcript.

Corrigan cited the “major questions doctrine,” a legal theory embraced in recent years by conservative lawyers and judges – including the U.S. Supreme Court – in challenges to many Democratic and progressive policies. The doctrine says that federal agencies can only issue rules with broad societal impacts with Congress’ explicit permission.

About 30 million people, or 20% of U.S. workers, have signed noncompetes, according to the FTC. The commission enforces federal antitrust laws.

FTC spokesman Douglas Farrar said in a statement the limited nature of Corrigan’s ruling meant that the noncompete ban will still go into effect for most Americans on Sept. 4.

“The FTC will continue its fight to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty,” he said.

Lawyers for Properties of the Villages did not immediately respond to requests for comment.

The Democratic-controlled commission and supporters of the rule say noncompete agreements suppress workers’ wages and mobility and violate U.S. antitrust law by limiting competition for labor.

California, Minnesota, Oklahoma and North Dakota have already banned noncompete agreements, and at least a dozen other states have passed laws limiting their use. The FTC’s rule would be the first nationwide ban.

Business groups and many Republicans say that noncompetes are a crucial tool for businesses to protect trade secrets, confidential information, and their investments in recruiting and training workers.

At least three lawsuits have been filed challenging the ban. A federal judge in Texas last month blocked the FTC from enforcing the rule against a coalition of business groups, including the U.S. Chamber of Commerce, the country’s largest business lobby, and tax service firm Ryan.

But a judge in Philadelphia later in July refused to block the rule in a lawsuit by a tree-trimming service, finding that it was reasonable for the FTC to determine that noncompetes are “exploitative and coercive.”