Today, the U.S. District Court for the Northern District of Texas held that the Federal Trade Commission cannot “create substantive rules regarding unfair methods of competition” and enjoined the agency’s rule banning noncompete clauses in employment contracts for the named plaintiffs.
This past April, the FTC published a final rule banning noncompetes with all workers, including senior executives. The final rule provides that it is an unfair method of competition – and therefore a violation of Section 5 – for employers to enter into noncompetes with workers. Public Knowledge strongly supported the noncompete rule, as noncompetes not only harm workers, but also harm consumers in the form of diminished competition by deterring new business formation and expanding into new lines of business.
The following can be attributed to Elise Phillips, Policy Counsel at Public Knowledge:
“We are incredibly disappointed that Judge Ada Brown elected to limit the ability of the FTC to do its job. This decision is the latest in a series of attacks on the administrative state, which only further embolden judges without subject matter expertise to seize power from federal agencies and prevent them from effectively serving the American people.
“Competition rulemaking is a critical tool for the FTC. The agency must be able to use this tool to maximize the impact it can have on protecting competition in our economy and for consumers. Case-by-case enforcement alone is less efficient, slower, and provides less certainty than rulemaking. The FTC must be able to use statutory flexibility afforded to them to meet the needs of consumers now.
“Likewise, the FTC’s ban on noncompete clauses served as necessary relief to the labor market, as it increased worker mobility and bargaining power and expanded employment opportunities in many industries. Noncompete clauses also harm consumers, deterring entrepreneurship and the expansion of new lines of business. They lead to diminished competition, innovation, and product quality, as well as higher prices for everyone. While the injunction is currently limited to the named plaintiffs, the District Court’s decision must be an outlier – not an omen for implementation of the rule nationwide.
“We await Judge Brown’s final decision on the merits of the injunction in August, and any appeals.”
You may view our comments filed with the FTC for more information.
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